Calhoun: The NPS Institutional Archive
Theses and Dissertations Thesis Collection
1997 The dynamics of naval shipbuilding : a systems approach
McCue, Timothy P http://hdl.handle.net/10945/8281
THE DYNAMICS OF NAVAL SHIPBUILDING - A SYSTEMS APPROACH
by
Timothy P. McCue r BA Physics, College of Holy Cross Master of Science in Mechanical Engineering, SUNY Stonybrook
Submitted to the Department of Ocean Engineering in Partial Fulfillment of the Requirements for the Degrees of
NAVAL ENGINEER
and
MASTER OF SCIENCE in OCEAN SYSTEMS MANAGEMENT
at the Massachusetts Institute of Technology June 1997
S3 1997 Timothy McCue. All rights reserved.
The author hereby grants MIT permission to reproduce and distribute copies of this thesis document in whole or in part. Y)t$ /4+cV\\oe nn MW&k fYYC^tV f/\
This thesis is dedicated to the
grandfather I never knew
LCDR Eugene Patrick McCue USNR Acknowledgments:
Many people at many different levels contributed to this work. I was able to travel all over the country collecting information and interviewing people involved with Naval Ship Acquisition and Construction. From the LPD-17 Program Manager to the production planners at NASSCO to the manager of the Hardings plant at BIW, I found everyone to be passionate about what they do. I also found everyone willing to discuss new ideas and to try to find ways to improve the process. Without these discussions, the Ship Production Model would never have been created.
I would like to thank the US Navy for the opportunity to attend MIT. The knowledge I have gained over the past three years has already proven invaluable and will be a true asset in the years ahead. I would like to thank the Navy staff at MIT for their extraordinary support. The creative atmosphere spawned by Captain Alan Brown and LCDR Mark Welsh allowed free thinking and exploration into new areas. My many discussions with each of these officers has led to a better formulation of the role of
Engineering Duty Officers. Their advice and counsel is very much appreciated.
I would like to thank Professor John Sterman and Jim Hines of the System
Dynamics Group at Sloan for their indoctrination into System Dynamics. I found the field fascinating and plan on continuing to use modeling in my career. Taking classes at Sloan provided a different perspective than the engineering courses in the 13A curriculum. I feel both perspectives are very important.
Specifically I would like to thank Jim Lyneis of Pugh Roberts Associates, Dave
Philo at Ingalls Shipbuilding, Eric Surestedt of Bath Iron Works, Peter Jaquith and Matt Tedesco of NASSCO, Tom Rivers of NAVSEA and Phil Koenig of NSWC Carderock. All of these professionals took the time to listen to my ideas and provide valuable feedback. Their grasp of the realities of shipbuilding were critical to this work.
Finally I would like to thank my family and friends for their support during the entire time at MIT. I tried to balance school and the real world to the best of my ability.
Sometimes it took a tug from one of my kids, Katlyn and Luke, to "...stop and smell the roses." Karen, as usual, kept me grounded lest I forget about what is really important. I thank her for her patience and unflagging support. --'ry "SCHOOL S3-5101
The Dynamics of Naval Shipbuilding: A Systems Approach to Project Management Assessment
by
Timothy P. McCue
Submitted to the Department of Ocean Engineering
in Partial Fulfillment of the Requirements for the Degrees of
NAVAL ENGINEER and MASTER OF SCIENCE in Ocean Systems Management
May 1997
Abstract:
Project management in the shipbuilding industry is a complex and misunderstood field. Ship programs are often delivered behind schedule and over budget. Many external factors can cause a relatively well run program to experience problems. These include material shortages, labor problems or customer generated design changes. Even harder for a manager to understand are internally generated problems from sources like overtime use, hiring and firing policy, and cost estimating.
Project managers do not understand or have the tools to measure many of the dynamic features of a construction process. These features include feedback, time delays and nonlinear cause and effect relationships among project components. In general, people have a hard time dealing with nonlinear relationships in their mental models of the world. When three or four of these relationships are operating at the same time, the resulting complexity becomes very hard to unravel intuitively. Experienced program managers can describe dynamics and understand they are operating on the system. They cannot quantify the strength or impact of these features on their project.
The purpose of this paper is to use System Dynamics modeling to examine the Navy Ship Acquisition and Construction process and to increase the knowledge and understanding concerning the management of large Navy shipbuilding projects. System Dynamics captures the many complex facets of ship construction simultaneously and examines their behavior over time. Using simulation, project managers in the Navy and in the private sector can make better, more quantitative decisions. 1 1
TABLE OF CONTENTS:
CHAPTER 1 11
1.1 - Introduction 11
1.2 - Motivation 15
1.3 -Outline 19
CHAPTER 2 - LITERATURE SEARCH 23
2.1 - The Affordability Crisis 23
2. 1 Reference Modes 25 2.12 Definition of Terms 33 2.13 Causal Loops 37
2.2 - Acquisition Reform 45 2.2 Commercial Off The Shelf (COTS) 46 2.22 Standards and Specifications 47 2.23 The Affordability Through Commonality Program 50
2.3 - Commercial Shipbuilding Initiatives 54 2.31 MARJTECH 55 2.32 National Shipbuilding Research Program 57 2.33 Mid-Term Sealift Ship technology Development Program (MTSSTDP) 59 2.34 Lean Shipbuilding Initiative 61
2.4 Build Strategy Development 66 2.41 Description 67 2.42 Components 69
2.5 Dynamic Project Modeling 72
2.51 History - Ingalls Case Study 74 2.52 Ingalls Internal Use of the Shipbuilding Model 78 2.53 Halter Marine 82 2.54 Other Systems Dynamics Models 91 2.55 Potential 99
CHAPTER 3 - Shipyard Visits 101
3.1 - Ingalls Shipbuilding, Pascagoula, MI 104 3.11 History 105 3.12 Financial Status 105 3.13 Current Navy and Commercial Work 107 *"" 3.14 Future Strategic Plan 108
3.15 Shipyard Layout 1 09
3.16 Human Resource Management 1 1 3.17 Production Planning 112
3.18 Phases of Construction 1 13 3.19 Performance 119 3.1 10 Use of Simulation 120 3.111 Summary 122 1
3.2 - Bath iron Works, Bath, ME 124 3.21 History 124 3.22 Financial Status 125 3.23 Current Navy and Commercial Work 125 3.24 Future Strategic Plan 127 3.25 Shipyard Layout 128 3.26 Human Resource Management 129 3.27 Production Planning 130 3.28 Phases of Construction 131 3.29 Performance 138 3.210 Use of Simulation 138 3.211 Summary 139
3.3 - NASSCO, San Diego, CA 141 3.31 History 141 3.32 Financial Status 142 3.33 Current Navy and Commercial Work 143 3.34 Future Strategic Plan 144 3.35 Shipyard Layout 144 3.36 Human Resource Management 146 3.37 Production Planning 147 3.38 Phases of Construction 148 3.39 Performance 150 3.310 Use of Simulation 151 3.311 Summary 153
3.4 - Newport News Shipbuilding, Newport News , VA 154 3.41 History 154 3.42 Financial Status 155 3.43 Current Navy and Commercial Work 156 3.44 Future Strategic Plan 157 3.45 Shipyard Layout 157
3.5 - Avondale Shipbuilding, New Orleans, LA 159 3.21 History 159 3.22 Financial Status 159 3.23 Current Navy and Commercial Work 160 3 .24 Future Strategic Plan 160 3.25 Shipyard Layout 161 3.26 Use of Simulation 162
3.6 Summary 162
CHAPTER 4 - Ship Production Model Descriptions 164
4.1 - Model Development 166 4.1 Previous Project Models 167 4.12 Ship Production Characteristics 169 4.13 Model Features 170
4.2 Model Structure 173 4.21 Multi Phase Work Flow and Rework Sector 174 4.22 Labor Adjustment Sector 178 1
4.23 Phase Initiation and Schedule Completion 1 8 > 4.24 Financial Sector 185 4.25 Quality Effects 187
4.26 Productivity Effects 1 89
4.27 Shipyard Constraints 1 9
4.3 Base Model Run 193
4.3 1 Model Behavior - Base Case 1 94
4.4 Policy Investigation on SOCV Project 203 4.41 Effect of Quality on project Performance 203 4.42 Manning Levels 207 4.43 Overtime Policy 209
CHAPTER 5 - SOCV Case Studies - BIW VS Ingalls 214
5.1 - Ingalls vs. BIW on DDG-51 216
5.1 1 Key Events Schedule 216 5.12 Shipyard Suggestions 218 5.13 Qualitative Assessment 220 5.14 Performance of Bath vs. Ingalls on SOCV 222
5.2 Increase the Level of Pre-Outfitting 225 5.21 Problem Description and Reference Modes 226 5.22 Dynamic Hypothesis 228 l> 5.23 Analysis 229 5.24 Results 230
5.3 Choke Point Analysis and Investment in Infrastructure at BIW 232 5.31 Problem Description and Reference Modes 233 5.32 Dynamic Hypothesis 233 5.33 Analysis 234 5.34 Results 234
5.4 Additional Uses of Ship Production Model 236
5.5 Summary 239
CHAPTER 6 - Conclusions 241
6.1 Implications for the Navy Acquisition Process 242
6.2 Future Work 244
6.3 Flight Simulator 245
REFERENCES: 247
APPENDIX A: BUILD STRATEGY DEVELOPMENT 252 > Build Strategy Purpose 255 SOCV Description 255 C Shipyard Selection 256 Contractual Issues, dates and Schedules 257
Production Planning 263 Master Construction Schedule and Key Events 264 Block Breaks 268 Block Assembly Sequence 271 Material Procurement 274
Construction Stages 275 Detailed Design 276 Fabrication of Products 279 On Unit Construction 281 On Block Construction 283 On Board Construction 284 Summary 286
APPENDIX B: MODEL EQUATIONS 288
APPENDIX C: GLOSSARY OF TERMS 309
c
c 95
TABLE OF TABLES: TABLE 2-1 - FORCE LEVELS AND EXPENDITURES 28 TABLE 2-2 - US VS FOREIGN PRODUCTIVITY 64 TABLE 2-3 - FORD MODEL STRUCTURES 98 TABLE 3-4 - INGALLS FINANCIALS 106 TABLE 3-5 - INGALLS ORDER BOOK 107
TABLE 3-6 - INGALLS WORK PERCENTAGES AT EACH PHASE 1 1
- TABLE 3-7 INGALLS PHASES AND WORK START PERCENTAGES 1 1 TABLE 3-8 - GENERAL DYNAMICS FINANCIAL DATA 125 TABLE 3-9 - NASSCO ORDER BOOK 143 TABLE 3-10 - NASSCO STAGES OF CONSTRUCTION 150
TABLE 3-1 1 - NNS FINANCIAL STATUS 155 TABLE 3.12 -NNS ORDER BOOK 156
TABLE 3-13- FINANCIAL DATA AT AVONDALE 1 59
TABLE 3-14- AVONDALE ORDER BOOK 1 60 TABLE 3-15 - SHIPYARD STRATEGIC VARIABLES 163
TABLE 4-16- COST PERCENTAGE BY PHASE 1 95
TABLE 5- 1 7 - BI W AND INGALLS PARAMETERS 223 TABLE 5-18- PREOUTFITTING LEVELS 229 TABLE A-19-SOCV CHARACTERISTICS 256 TABLE A-20 - POSSIBLE SOCV SHIPYARDS 257 TABLE A-21 - PAYMENT SHCEDULE 259 TABLE A-22 - MASTER CONSTRUCTION SCHEDULE 265 TABLE A-23 - FOLLOW ON SHIP SCHEDULE 267 TABLE A-24 - ZONAL BLOCK NUMBERING SEQUENCE 270 TABLE A-25 - LONG LEAD TIME MATERIALS AND PROCUREMENT SCHEDULE 275 TABLE A-26 - DYNAMIC MODEL INPUTS 287 TABLE OF FIGURES:
FIGURE 1-1 - A- 12 COST AND SCHEDULE PERFORMANCE 18 FIGURE 2-2 - COST OF SURFACE COMBATANTS IN $K (FY90)/TON 26 FIGURE 2-3 - SIZE OF US NAVY 29 FIGURE 2-4 - DOMESTIC SHIPBUILDING MARKET 30 FIGURE 2-5 -SHIPBUILDING TRENDS 32 FIGURE 2-6 -ARMS RACE DYNAMIC 38 FIGURE 2-7 - MILITARY INDUSTRIAL BASE 40 FIGURE 2-8 - COMMERCIAL INDUSTRIAL BASE 42 FIGURE 2-9 -FLOW OF WORK ACCOMPLISHMENT 94
FIGURE 2- 1 -FORD MAJOR SECTIONS 98
FIGURE 3-1 1 -INGALLS SHIPYARD LAYOUT 1 10 FIGURE 3-12 - INGALLS MATERIAL FLOW 115 FIGURE 3-13 -BATH YARD LAYOUT 130 FIGURE 3-14 -BIW BLOCK FLOW 133 FIGURE 3-15 -NASSCO YARD LAYOUT 147
FIGURE 3-16- NEWPORT NEWS SH I PBUILDING 1 59 FIGURE 3-17 - AVONDALE SHIPYARD LAYOUT 162
FIGURE 3-18- MODEL BOUNDARIES 1 73 FIGURE 4-19 - WORK ACCOMPLISHMENT SECTOR 176
FIGURE 4-20 - LABOR DETERMINATION 1 80
FIGURE 4-2 1 - SCHEDULE SECTOR 1 84
FIGURE 4-22 - FINANCIAL SECTOR 1 88 FIGURE 4-23 - EFFECTS ON QUALITY 190 FIGURE 4-24 - EFFECTS ON PRODUCTIVITY 192 FIGURE 4-25 - CONSTRAINTS TO PRODUCTION 194
FIGURE 4-26 - BASE RUN COSTS 1 96
FIGURE 4-27 - BASE RUN PHASE COSTS 1 97 FIGURE 4-28 - BASE RUN WORK QUALITY BY PHASE 198 FIGURE 4-29 - BASE UNDISCOVERED REWORK 199 FIGURE 4-30 - BASE CASE LABOR BY PHASE 200 FIGURE 4-31 - PRODUCTIVITY BY PHASE 201 FIGURE 4-32 - FACTORS EFFECTING PRODUCTIVITY 202 FIGURE 4-33 - EFFECTS ON FABRICATION PRODUCTIVITY 203 FIGURE 4-34 - EFFECT OF QUALITY ON COST 208 FIGURE 4-35 - MAXIMUM PROJECT LABOR 210 FIGURE 4-36 - COST OF VARYING OVERTIME 212 FIGURE 4-37 - EFFECT ON PRODUCTIVITY OF OVERTIME 213 FIGURE 5-38 - INGALLS VS BATH ON SOCV 226 FIGURE 5-39 -PRODUCTIVITY AT BIW ON SOCV 227 FIGURE 5-40 - LEVEL OF PREOUTFITTING 230 FIGURE 5-41 - EFFECT OF HIGHER PREOUTFITTING 232 FIGURE 5-42 - BIW B&P COMPARE 237 FIGURE A-43 - SHIP CONSTRUCTION PROCESS 256 "~ FIGURE A-44 - TYPICAL HULL PLANNING FUNCTIONS 265 FIGURE A-45 - CLAW CHART 273 FIGURE A-46 - OUTFITTING PRODUCTIVITY 282
10 Chapter 1
1.1 - Introduction:
The Naval shipbuilding industry is a complex and misunderstood field. Projects are typically behind schedule and over budget. Many external factors can cause a relatively well run program to experience problems. These include material shortages, labor problems or customer generated design changes. Even harder for a manager to understand are internally generated problems from sources like overtime use, hiring and firing policy, and cost estimating. Project managers do not understand or have the tools to measure many of the dynamic features of a construction process. These features include feedback, time delays and nonlinear cause and effect relationships among project components. In general, people have a hard time dealing with nonlinear relationships in their mental models of the world. When three or four of these relationships are operating at the same time, the resulting complexity becomes very hard to unravel intuitively.
Experienced program managers can describe dynamics and understand they are operating on the system. They cannot quantify the strength or impact of these features on their project.
The nature of the product also adds to the project's complexity. A ship is built from a multitude of small manufactured parts that are assembled into larger parts and
finally fit together as construction blocks. If the small assemblies are not built to proper
1 Ford, D. N., (1995), The Dynamics of Project Management: An Investigation of the Impacts of Project Process and Coordination on Performance. Ph.D. Thesis. Sloan School of Management. Massachusetts Institute of Technology. Cambridge, MA.
11 tolerances, errors compound downstream to cause rework or out of sequence work. The precedence relationships of one phase of the project on another can lead to large delay
and disruption penalties. If an error occurs in the design of the ship, it may not be discovered until many of the small assembles have been manufactured. If the required
design change is large enough, many of the smaller assemblies may be rendered obsolete.
The results of such behavior include huge cost over runs, schedule slippage and poor customer relations.
Much work is ongoing to better define the product with 3-D product models. All new Navy ship programs require an electronic version of the ship that can be transferred from the government to the shipyard and back. Not much has been done in modeling and simulating the process by which ships are built. The real improvements that can be made in reducing the costs of Navy ships will come through proces improvement, not through product optimization. By taking into account necessary process changes in product design, significant improvements in productivity can be realized.
The market for America's shipbuilders has gone from bad to worse in the last few
years. Foreign competition has eroded the commercial industrial base. The US Navy is in a period of consolidation, limiting the amount of available government shipbuilding contracts. The lack of new work has made project management even more critical to ship builders. Problems with an existing project could cause the loss of future work with a valuable customer. Many major shipbuilders are experimenting to find new ways to
improve the process in order to compete at home and abroad. The ship construction cycle
12 can take five to fifteen years. The process starts with initial concept design and ends with delivery to the customer. Cycle time reductions are critical in order to deliver a ship that meets an existing market or threat.
Much time and effort has been expended trying to revitalize the ship building industry in this country. A strong ship building industry allows the Navy to take advantage of state of the art commercial practices. The best practices of a market leader will result in reduced costs for Navy ships. Without a strong commercial base, the Navy
must shoulder the cost and risk of developing any new technology. This is an expensive proposition. Perhaps the time has come to take a fresh look at the shipbuilding process.
Business as usual clearly is not working.
The purpose of this paper is to use System Dynamics modeling to examine the
Navy Ship Acquisition and Construction process and to increase the knowledge and understanding concerning the performance of large Navy shipbuilding projects. A glossary of terms is included in Appendix C to decipher the acronyms and unique
terminology of shipbuilding. Likewise, System Dynamics is used to capture the many complex inter-relationships of ship construction simultaneously and examines their behavior over time. Jay Forrester developed the field in the early sixties to study complex social systems. System Dynamics has expanded in recent years to study product development processes in the software and automobile industries. Shipbuilding consists of large, complex, capital intense projects. Shipbuilders consider prototyping too
expensive. Because of this, shipbuilding is a natural field for use of simulation.
13 Any large scale construction project demonstrates the following characteristics:
• Extremely complex, consisting of multiple interdependent components
• Highly dynamic
• Involve multiple feedback processes
• Involve nonlinear relationships
2 • Utilize "hard" and "soft" data
All of these factors complicate the management of these projects. Shipbuilding has been the focus of several earlier System Dynamics studies. The most widely known cases involve litigation against the government. Potential exists for wider use of simulation in this field. Some proposed uses include:
• Contract Bid Analysis
• Productivity Improvements
• Optimal Manning Analysis
• Build vs. Buy Studies
• Policy Assessment
• Design Change Assessment and Management
• Cost Estimation
In this paper, computer simulation is used to investigate some of the management policies and constraints found in a shipyard. By combining these management policies,
2 Sterman, J.D., (1992), "System Dynamics Modeling for Project Management," unpublished working paper, Systems Dynamics Group. Sloan School of Management. Massachusetts Institute of Technology.
14 shipyard constraints and the products characteristics in one model, the cumulative effect
of all decisions a shipbuilder makes concerning a ship program can be examined. A
computer model requires the user to define boundaries and make assumptions concerning
the level of aggregation. The definition of boundaries narrows the scope of the model
and makes clear to the user the purpose and limits of the model.
1.2 Motivation
The US Navy manages some of the most complex and expensive projects
in the country. The weapon systems, ships and aircraft produced in these projects
are the most capable in the world. Problems inevitably arise in managing these high risk programs that produce cutting edge, state of the art hardware. Operating
with risk is better understood in the commercial sector. Investing in new
technology is a risky proposition and must be managed accordingly. Many innovators never take their product to market. The inventor who introduces a
new technology is often overtaken and forced out of business by a later entry
competitor. Sometimes it is easier to let the competition develop a new risky
technology. Once a dominant design is established the risks involved decrease.
Small improvements in the product and the manufacturing process provide a competitive advantage. In this way, one could develop- a competitive product
without being exposed to large risks.
3 Utterback, J.M., (1994), Mastering the Dynamics of Innovation, Harvard Business School Press, Boston, MA.
15 This is not an option for the US Navy. The United States has long relied
on a commitment to using the latest technology in our military hardware as a
tactical advantage. Allowing the enemy to take the lead in developing new
weapon systems could have dire consequences for the Navy. Experiences in the
Gulf War indicate that technology can be effectively used as a force multiplier.
The Department of Defense has had significant problems integrating new technology into existing product lines in an expeditious and affordable manner.
Technology integration has become even more critical in the last few years with the rapid development of information systems, computational capability, and global inter-connectivity. To maintain our technological advantage we must do things smarter, cheaper, and faster than the enemy.
Computer hardware frequently becomes obsolete in less than 5 years. This forces a similar reduction in military product development times. Current cycle times for Navy ships from concept design to final delivery may take as long as fifteen years. During this period of time the entire world may have changed. Just such a scenario occurred with the Seawolf class submarine. The Seawolf was designed at the height of the Cold War to be the most capable attack submarine in
the world. Its primary mission was to attack Russian submarines. In the time it took to design and build the Seawolf, the Russian Navy virtually collapsed. The
threat the Seawolf was built to meet no longer exists. This left the Navy with a very capable, and expensive, ship with no legitimate adversary. Most of the class
16 was canceled as a result. Cycle time reductions are a critical improvement the
Navy must make in order to match hardware with current requirements.
For the military, failing to utilize a critical technology could mean the difference between winning the next battle and not coming home! For the private
sector, the situation is very similar. Missing a jump in technology could mean loss of market share and could drive the company to bankruptcy. The stakes in both cases are very high. A recent study conducted to benchmark product development projects around the world indicates that less than fifty percent meet
their targets for cost and schedule. Clearly something is acting to mislead planners and managers as to the real cost and schedule needed to develop new products.
The latest and most expensive case of mismanagement of a military
program is the new attack aircraft designated the A- 12. Although many people involved with this program were aware of serious problems with weight and schedule, the project was allowed to continue. The performance for cost and schedule demonstrates exponential behavior as can be see in Figure 1-1.
4 Roberts, E.B., (1992) "Strategic Management of Technology: Global Benchmarking," Cambridge MA
17 A-12 Cost and Schedule Performance
100
80 I
60
|* 40 -Over Budget E = •Behind Schedule £ so 20
s e
Jar 89 Mar "•-.May July Sept Nov Jan '90 -20
-40
Figure 1-1 A-12 Cost and Schedule Performance
The managers of this program chose to quibble about specific ceilings and
scheduled dates instead of looking at the behavior of the project. Clearly, the project was out of control early in 1989 when overruns reached $100 million
dollars. By March of 1990, it was estimated to be more than $1 billion dollars
over budget and 1 year behind schedule. The contractor team of General
Dynamics and MacDonald Douglas, the Navy management team, and the
Congressional Oversight Group all were using different models to predict program performance. The program was eventually canceled resulting in a huge loss of taxpayer's dollars, new capability for the Navy's attack aircraft component and million of dollars in revenues for the contractor tearru_The law suit as to who
is responsible for the brunt of the losses is still in litigation.
Beach, C.B., (1990) "A-12 Administrative Inquiry", Memorandum for the Secretary of the Navy.
18 Why, with the stakes so high and the talent available, do these problems
occur? What are the underlying causes for the cost and schedule overruns
experienced in large military development projects? Why are cost and schedule
estimating tools so bad at predicting what would really happen given a set of
conditions? Are there policies that can be used to address dynamic sets of
circumstances which result in better project performance? These are all questions
that will be addressed in this work.
1.3 Outline
A literature search is conducted to determine the current state of the Navy
ship acquisition process. The affordability crisis the Navy is currently
> experiencing in acquiring the new ships it needs is examined. Hypotheses on how
to improve the process will be generated and discussed for applicability.
Several current acquisition reform measures instituted by the Department
of Defense aimed at improving the process including Affordability Through
Commonality (ATC) and Commercial Off The Shelf (COTS) will be reviewed for
their impact on the crisis.
The National Shipbuilding Research Program (NSRP) is one of several
projects which study ways to improve the competitiveness of US shipyards. Part
of the NSRP approach is to encourage the development of a Build Strategy for >
19 each yard. A Build Strategy consists of all of the important decisions a builder
and a customer must make in order to build a ship. If the Build Strategy is well
thought out, the program has a better chance of success. Build Strategy
development is discussed and a plan is formulated for a high performance
commercial ship. Key events are identified. Block breaks and construction
sequence are discussed. The different stages through which the parts that make up the ship are discussed.
A series of shipyard visits is conducted to observe US Navy ship building in commercial yards. The different sequences used for building ships and the critical features of managing these projects are discussed. Several hard to quantify variables like quality, productivity, and rework are discussed with shipbuilders. The shipyards include:
• Avondale Industries, New Orleans, LA
• Bath Iron Works, Bath, ME
• Ingalls Shipbuilding, Pascagoula, MI
• NASSCO, San Diego, CA
In many cases the perspective of a program manager is formed by the tools used to measure performance. Without robust tools that can capture the important factors of a project, a manager will be operating with an incomplete picture.
Current tools used to manage Navy projects and develop cost estimates are
20 discussed. The advantages and disadvantages of the current tools are reviewed.
One management field that has received little attention from the Navy is System
Dynamics. Dynamic models have been used in the past by contractors to describe the shipbuilding process in support of delay and disruption claims against the government. Although System Dynamics was used successfully by shipbuilders to demonstrate their case, the Navy chose not to develop any of their own models.
A dynamic model, the Ship Production Model, is developed and examined
in detail to determine it's applicability to Navy ship construction. The observations and data collected during the shipyard visits are used to develop the structure and policies found in the model. The model's purpose and boundaries are discussed. The structure of the dynamic sectors of the model are examined in
detail.
The Ship Production Model is used to determine the best way to build a new ship in a virtual shipyard. Several policies are examined including: quality,
use of overtime, and required manning levels. Analysis is conducted to determine
the choke point in the process. Infrastructure is added to determine its impact on the performance of the project.
The model is tuned to exhibit the features of existing shipyards. A
comparisons of two shipyards is conducted on a high performance commercial ship program. Schedule and cost performance are evaluated. Several ways to improve the productivity of each yard are discussed.
21 Finally, the implications for future use of Systems Dynamics in Navy program management are discussed. Dynamic models become the reservoir of much information about the system. The real value of the model is the chance to examine policies in detail rapidly and without risk to the program. The models become valuable communications tools that can be used to find common ground between the government and the contractor on difficult issues. Models could be used as early as the concept design stage to make clear the goals and objectives of
all interested parties. By providing a tool to practice the management of a large project, problems like those experienced on the A- 12 can be avoided.
22 Chapter 2 - Literature Search
In this chapter, a review of the literature is conducted to determine the current
state of the Navy ship construction process. The cost of buying Navy ships has increased steadily in the past 20 years. The dynamics behind this increase will be investigated using causal loops. Several initiatives that attempt to remediate this problem will be investigated including acquisition reform, revitalizing the commercial industrial base, and build strategy development. Possible solutions to this Affordability Crisis are discussed.
These include Lean Shipbuilding. Finally, the use of System Dynamics modeling is discussed as a way to better understand the complexities of shipbuilding and to examine the true impact of some of the reform measures.
2. 1 The Affordability Crisis
The Navy is currently experiencing a crisis in which it can no longer afford the
ships it requires. Several acquisition reform programs including Affordability Through
Commonality (ATC), Commercial Off The Shelf (COTS), and Standards and
Specification Reform have been developed to address this crisis. These are described in detail in the next section. Some of these programs may have a real impact on the cost of
future ships. Others are merely first aid to correct a small but visible problem.
Several programs have also been instituted to try to revitalize commercial shipbuilding in this country. These include the MARITECH Program, National
Shipbuilding and Research Program (NSRP), and Mid-Term Sealift Ship Technology
23 Development Program (MTSSTDP). These efforts study why the commercial shipbuilding industrial base has eroded since 1980 and attempt to find corrective measures. They also try to show US shipbuilders how they can become world class manufacturers. Foreign shipbuilders can produce ships faster and cheaper than their
American counterparts. Without throughput to improve shipbuilding methods and productivity, American yards will continue to lag behind foreign yards when competing for commercial contracts. Either more Navy work needs to be generated or commercial work needs to be stimulated in some way.
It is critical to understand the true nature of the Affordability Crisis before
attempting to repair it. In some cases, two acquisition reform programs are in conflict with each other. Although each measure sounds like a good idea on paper, each must be
tested for applicability in real life amidst the complexities of the process. The dynamic,
non-linear nature of the ship construction and acquisition process is difficult to grasp.
Because of this, some solutions address one part of the crisis while ignoring the big picture. Applying solutions that do not take into account the entire problem may have a
detrimental effect instead of the desired positive effect. Causal loop diagrams are used to
try to capture some of the dynamic behavior that is described but not explicitly defined by other authors. Many articles discuss pieces of the crisis but few capture the whole
picture. Without a broader perspective, true acquisition reform is not possible.
24 2.11 Reference Modes
The process used to develop a System Dynamics model involves:
• Reference Mode Identification
• Dynamic Hypothesis
• Modeling
• Analysis
These steps force the modeler to fully examine the system of interest. In many cases, valuable insight can be gained during each step in the process. For the Affordability
Crisis, the first two steps in the modeling effort will be conducted. To fully model and
analyze the Affordability Crisis is beyond the scope of this work.
The first way to examine this problem is to look at historical data on a set of axes.
From these plots, trends can be observed concerning the nature of the problem. These trends describe behavior of the important variables in the problem. The behavior will
indicate whether a variable represents a problem or not. Is the variable exhibiting linear
behavior or does it exhibit exponential behavior? Does the growth decay slowly to an
upper limit or does it continue to infinity? Is the behavior cyclical? Much insight can be
gained by examining the reference modes of a problem in this fashion. The first
reference mode for the Affordability Crisis is demonstrated in Figure 2-2.
6 Hines, J.H. and Johnson, D.W., (1994), Launching System Dynamics, International System Dynamics Conference.
25 *
Cost of Surface Combatants ($K/Ton)
200 180 FFG-•7 ^n_/i7 nnr. < 160 ^I >> j^yy 140 -— _.. — 120 __—--—""" ^ CG-38 ______100
80 DD-Q63 DDG 99't 60 40 20
1975 1980 1985 1990 1995
igure 2-2 - Cost of Surface Combatant Ships in $K (FY 90)/TON
The total acquisition cost in constant dollars of Navy surface combatant ships per
ton is steadily increasing with time. The behavior associated with this trend is linearly increasing. These costs are the result of several inter-related dynamics.
First, more military capability is required to counter the threat of faster, deadlier, and more widely distributed advanced weapons systems. The military tends to
incorporate new technology to a greater extent and is willing to assume more risk than commercial product development groups. To remain the technological leader of military hardware in the world, the Navy must pay "innovator" costs. In the commercial world,
this role is called an industry leader. This position has its advantages and disadvantages.
Being first to market allows you to grab market share from the competition if the new
26 product is superior. However, once a product has been brought to market, the competition has the luxury of reverse engineering to determine what went into the
development effort. Sometimes it may be more cost efficient to follow the market leader
with a similar product if the development effort is risky. Thus far the US military has committed itself to remaining an industry leader. The costs associated with this strategy must be understood and dealt with accordingly. This behavior will be described as the
Arms Race dynamic.
Second, the decrease in Navy ship end strength numbers reduces new ship construction contracts. After a peak in 1990, the trend has been sharply downward.
Several projections have been made concerning the future size of the Navy including the
Surface Combatant Force Level Study and the Bottoms Up Review. Based on these studies, current national directives call for a force of between 325 and 350 ships for the foreseeable future. The current defense budget spending does not even support this level.
As the worldwide threat changes, these levels will be adjusted accordingly.
27 The portion of the defense budget allocated to ship construction is around $5 billion dollars per year. To support the current force levels at current costs, the required
expenditures to maintain a 325 ship Navy is $7.4 billion dollars as indicated in Table 2-1.
Ship Type #/year Service Life Force Level SB/year CG/DD 3 30 90 2.7 CV 0.2 50 10 0.9
A 1 30 30 0.5
SSN 1 30 30 1.5
SSBN 0.5 30 15 1 AMPHIBS 2 25 50 0.8 Totals 225 7.4
Table 2-1 - Force Levels and Expenditures
28 With fewer ships being built, volume discounts associated with long production runs are not achieved. The unit cost of doing business increases since there is less business over which to spread overhead costs. This behavior will be further discussed in the Military
Industrial Base diagram. Figure 2-3 shows the trend for the number of ships on active duty in the Navy.
Number of Navy Ships
600
500
Ships 400
300 1975 1980 1985 1990 1995 2000
Fiscal Year
Figure 2-3 - Size of the US Navy
Third, the Navy's support infrastructure is harder to downsize than number of ships. This results in higher cost of support infrastructure until adjustments can be made through the Base Realignment and Closure program (BRAC). This dynamic will also be discussed in Military Industrial Base.
29 The commercial shipbuilding industry in the United States has been in decline for some time. The reference mode for this is demonstrated in Figure 2-4.
Shipbuilding Market (Billions in 1990$s)
1? -,
10 -
J L 8 Commercial 6 — * — Naval N, i 4 ! - - - • Combined 2 - o
19 75 1980 1985 1990 1995 2000
7 '. igure 2-4- - Domestic Shipbuilding Market
This trend was obscured during the push for a 600 ship Navy in the military buildup of the 1980's. The Japanese and the Koreans continue to capture most of the
market share of new construction commercial shipping. If the Navy is to ever realize lower costs for their ships, the domestic shipbuilders will need to update their
30 shipbuilding methods to the level of the competition. If US yards could capture a reasonable portion of the commercial market, valuable experience could be gained in modern production methods. The modern techniques used by world class shipyards would result in decreasing the cost of producing Navy ships.
With the paltry share of the market enjoyed by American Shipyards, currently 1.2
%, the required improvements in shipbuilding technology will not occur without government subsidies. No commercial base exists to provide the economies of scale necessary to stimulate improvement. In the automotive and aerospace industries, great strides have been made to improve American competitiveness on a global basis. Without a healthy commercial industrial base, shipbuilding in this country will never become
world class. It is quite apparent by examining the order book of American shipyards today in Figure 2-5 that we are not competetive.
31 Current Shipbuilding Order Book (1996) Japan S.Korea China Poland Taiwan H Germany Romania Spain IJkraine Italy Denmark H Croatia United States Brazil
Vessels Tonnage ( 1 00k Turkey dwt) figure 2-5 - Shipbuilding Trends
If the commercial base continues in its present state of decline, the Navy will be faced with a monopsony in which only one customer exists in a given market. DOD acquisition regulations require competitively bid contracts. With the few number of new ships currently being built and more importantly, the meager amount of ships planned for the next 20 years, private shipyards may not have the work to stay in business. In order to maintain the industrial base, the Navy has been forced to pay an exorbitant amount for
each new ship. This behavior is defined further in the Commercial Industrial Base diagram.
Finally, the level of uncertainty in the basic national objectives adds to cost of doing business. The proliferation of advanced technologies make staying ahead of the game a very expensive proposition. During the Cold War, the huge expenditures needed to maintain our technological edge were justified as a national priority. In the post Cold
War era, the threats to our interests are not as well defined. Without a clear threat, the
32 justification for new expenditures is not as apparent. For this reason, specialized ships that are built to counter specific threats look less attractive. "Future uncertainties establish an increased value and need for flexibility on operational usage." This changes the emphasis for ship designers. To deal with uncertainty, they need to design in flexibility or margin for future upgrades. Instead of optimizing the ship for a specific mission, the design margin allows for growth or new weapons packages in the future.
2.12 Definition of Terms
The next step in examining the problem is to define the important variables associated with Navy ship construction and acquisition. Once the variables are identified, they can be grouped by their relation to each other. A brief description of how they
change over time is included. These variables involved with the Affordability Crisis were gleaned from literature and interviews with shipbuilders and Navy program managers.
Arms Race Dynamic
Advanced Weapons Proliferation - The rate at which high tech weapons spread to other
nations. Today's world is characterized by little if no real threat to US Interests. For this reason, the leading arms exporter in the world has become the United States. The rate at
which advanced weapons proliferates to the Third World is faster than ever before.
Actual Threat - Advanced weapons in the hands of countries or individuals at political or economic odds with the objective of the United States.
Bosworth, M. L.and Hough, J. J. (1993). Improvements in Ship Affordability. The Society of Naval Architects and Marine Engineers Centennial Meeting.
33 Perceived Threat - Based on intelligence sources. Currently perceived to be low. The perceived threat drives the commitment of funds to the military. If the perceived threat is low, fewer dollars allocated to the military. The problem with the Perceived Threat is
that it takes time to formulate. It is also subject to the biases of the analyst. Several times in recent history, the United States has found itself caught looking the other way because the Perceived Threat was wrong.
Required Military Capability of US Ships - The number of ships, aircraft and missiles needed to carry out the missions tasked by higher authority. Current tasking calls for the ability to fight two Major Regional Conflicts simultaneously. As force levels drop, this requirement may need to be revised.
Cost of Navy Ships - The acquisition cost of Navy ships. The material, labor, and shipyard overhead costs that make up the purchase price of a Navy ship.
Pressure for Reciprocating Capability - The pressure for countries at odds with US objectives to match the technology and weapons of the US
Military Industrial Base
Navy Order Book - The amount of work the shipyards have on order generated by the
Navy. Consists of new construction, conversion or maintenance. In the eighties the total
9 Navy Order Book came close to twenty billion dollars a year. In the leaner times of the
nineties, the Order Book is more like six or seven billion dollars.
On the Rebound? Navy Business, Marine Reporter and Engineering News, February 1997.
34 Need for New Ships - There are several things that drive the need for new ships. First,
older ships need to be replaced as they reach the end of their service lives. New ships may also be needed to meet a new threat. This was the case of the Mine Hunters built in the early nineties. Finally, in time of war, ships need to be built to replace damaged or
lost ships. The current need for new ships is low. More ships will leave the Navy this year than will be commissioned.
Defense Budget - The amount of money committed each year to supporting the military.
Part of this is committed to Ship Construction, Navy (SCN), the portion that goes to
building new ships. Current defense spending is lower than it has been since the seventies.
Required Military Capability - The ability to carry out the objectives of higher authority against a given threat. As the enemy capability rises, the Required Military Capability
Rises as well.
Capability Gap - The gap between the existing capability of the Navy and the capability required to achieve the objectives outlined by higher authority.
US Shipyard Overhead Rate - The rate charged to a ship contract that covers the
infrastructure and management costs of the shipyard. If the yard has very little work, these charges have to be absorbed over a smaller revenue base. This drives the overhead charges up for any one contract.
Commercial Industrial Base
Foreign Productivity - The ability of foreign yards to produce ships measured in
tons/person/year. The productivity of foreign shipbuilders, in particular the Japanese, is
35 considerably higher than typical US workers on similar projects. The reasons for this difference will be discussed in a later section.
US Productivity - The ability of American shipbuilders to produce ships measured in tons/person/year.
Foreign Order Book - The amount of work, measured in dollars, that a shipyard has
under contract. A large order book means the future will remain stable. It allows investments in personnel, infrastructure and process improvements.
US Commercial Order Book - The amount of work American yards have under contract.
Foreign Construction Costs - The total acquisition cost to the ship buyer in a foreign yard.
US Construction Costs - The total acquisition cost to the ship buyer in a domestic yard.
The cost of buying ships in this country has grown to almost double what a similar ship would cost overseas.
Foreign Subsidies - Many foreign countries offer construction subsidies to shipyards.
This acts to reduce the cost to the shipowner of buying a ship in that country. Stimulating
heavy industry in these countries is a national priority.
US Subsidies - In 1980, the United States government eliminated the Construction
Differential Subsidy (CDS) which was designed to keep American shipyards competitive in the world shipbuilding market. The commercial shipbuilding base has been in decline since this time. Under the Clinton Administrations National Shipbuilding Initiative
(NSI), other forms of subsidies have been explored. These include NSRP studies,
MARITECH funding for new ship designs, and Title XI financing and guaranteed loans
36 for new ships and for investments in infrastructure to try to make the US shipyards more
competitive.
2.13 Causal Loops
The final step is to build causal loops that link the variables. In this way the
relationships between the variables can be shown. A polarity is assigned to the arrows
that connect the variables. If the polarity is positive, the two variables behave in the same
way. If the polarity is negative, the two variables act reciprocally. If one increases, the other decreases. The loops created can be either balancing or reinforcing loops. These
are designated by either a balancing scale or a snow ball rolling down hill respectively.
Three separate dynamic relationships act to increase the cost of Navy ships. Determining the strength of these loops will require more research. Understanding that more than one
force is acting at any time is critical to solving the problem.
The first loop modeled is the Arms Race Dynamic depicted in Figure 2-6. The
Actual Threat of armed conflict in the world positively affects the Perceived Threat with
a time delay. The Perceived Threat is a combination of intelligence and strategic national objectives. Based on this Perceived Threat, the Required Military Capability of US
Ships to meet the threat is developed. This capability consists of a combination of platforms which can carry out various missions. The actual capabilities required are
better defined if the perceived threat is well understood. If the perceived threat is not as well defined, the platforms that are used to meet this threat need to have multi-mission capabilities or be reconfigurable. As the Perceived Threat increases, the Required
37 Military Capability of US Ships also increases. As more capability is required, the level of technology needed to respond tends to increase with a subsequent increase in cost.
Arms Race Dynamic
Pressure for Reciprocating Capability +
Advanced Weapons Proliferation \ y + I "%a Required Military Capability of US Ships V ^ A Cost of Navy Ships Actual Threat t
'Perceived Threat
Figure 2-6 - Arms Race Dynamic
The dynamic part of the arms race is that as the current capability of US Ships increases, the level of technology needed to match this capability increases. Pressure for
Reciprocating Capability is placed on other world powers to match this new capability with a time delay. This pressure tends to increase the rate of Advanced Weapons
Proliferation. In turn, weapons proliferation increases the Actual Threat to US objectives.
This completes a reinforcing feedback loop that has been the topic of much discussion since the beginning of warfare. The Arms Race Dynamic has been the cause of many
wars including World War I and has resulted in the expenditure of countless dollars.
Defusing this reinforcing feedback loop has proven to be a huge challenge.
38 The next loop, the Military Industrial Base Dynamic shown in Figure 2-7, deals
with the decreasing level of the US fleet and the subsequent loss of business for US
Shipbuilders. The Perceived Threat directly affects the amount of money allotted to the
Defense Budget. It also affects the Required Military Capability of US Ships. As was
seen directly after the Persian Gulf War, without a legitimate threat, the Congress looks to
reduce the money expended on the military. The funding for additional defense spending
usually evaporates long before the Required Military Capability of US Ships is adjusted.
The problem is that these Defense Budget cuts are based on the Perceived Threat, not the
Actual Threat. If deep cuts in capability are made too rapidly, it is impossible to regenerate this capability in a timely fashion should the Perceived Threat change. In
some cases, contractors who make products exclusively for the military are forced out of business.
As the Perceived Threat decreases, the amount of money dedicated to the Defense
Budget decreases. The Navy Order Book for new construction and for service life
extensions is correspondingly reduced. As the amount of work the Navy orders from the shipyards decreases, the US Shipyard Overhead increases. Overhead is the amount of
money that is charged to a contract to cover the costs of shipyard infrastructure. As the
work decreases, the overhead is spread out over fewer projects thus increasing the cost of each contract. As the US Shipyard Overhead increases, the Cost of Navy Ships also increases. As the Cost of Navy Ships increases, the number of ships the Navy can buy for the allocated money decreases. This, in turn reduces the Navy Order Book resulting in another reinforcing feedback loop.
39 Military Industrial Base
US Shipyard Overhead V
Required Military Capabi
Cost of Navy Ships
Perceived Threat •Navy Order Book
Capability Gap + .Need ,for New Ships/f
Defense Budget
Figure 2-7 - Military Industrial Base
The final loop, shown in Figure 2-8 deals with a problem that has been developing in this country since 1980, the Commercial Shipbuilding Industrial Base. When the US government decided to cut the Construction Differential Subsidy (CDS), US Shipbuilders could no longer compete with their overseas competition for commercial ship contracts.
Looking at the diagram, as US Subsidies decrease, US Construction Costs increase. This tends to increase the cost differential between US and Foreign Construction Costs. As the cost differential increases, the US Commercial Order Book decreases and the Foreign
Order Book increases. As the Commercial Order Book decreases, the US Shipyard
Overhead rate increases resulting in higher costs for Navy ships. The distressing part of
this diagram is that as the US Commercial Order Book decreases, US Productivity also
40 '
decreases. The ability to keep up with state of the art shipbuilding practices requires work on which to learn these skills.
A quick look at the reference modes indicates the US Commercial Order Book
has been practically non existent for the last 1 5 years. As US Productivity decreases, US
Construction Costs continue to increase resulting in a reinforcing loop. Contrarily, the
Foreign Order Book has benefited from the cost differential. As more work has gone overseas to the Japanese and the Koreans, their productivity has greatly improved. The ability to practice modern shipbuilding techniques on commercial ships has provided the foreign yards with a huge advantage. Having more work in the yard allows the Foreign
Overhead Rate to be spread over several contracts. As Foreign Productivity increases,
Foreign Construction Costs continue to decrease resulting in another reinforcing feedback loop.
Commercial Industrial Base
Foreign Subsidies us Subsidies
Foreign Productivity
Foreign Construction Costs &* US Construction ,osts +
Foreign Order Book^— + Foreign— US Cost Differential .% . \ ^ US Productivity
+ ipyard Overhead US Commercial'C'rder Book
Cost of Navy Ships
Figure 2-8 - Commercial Industrial Base
41 US shipbuilders are in a very difficult situation. As the military order book decreases, they have less business for which to compete. Without a significant order book, the future remains risky for many yards. Investments in yard improvements are put off until new contracts are signed. The productivity of American yards lags far behind the foreign yards. We employ more shipyard workers than any other nation in the world.
Why then do we produce so few ships?
The improvements will come to US Productivity only if work can be generated on which to learn modern practices. The US government has chosen to provide assistance to the airline industry and the automotive industry at different times during the past twenty years. These decisions were made because these industries represent vital national interest. Similarly, the shipbuilding industry represents a vital national interest. The shipyards are now looking to the Japanese to help improve shipbuilding processes. An
NSRP study identified several items as weaknesses in the way American yards build ships when compared to foreign yards. Technology transfers have been attempted with foreign yards to attempt to make up the shortfalls in new designs and technology.
Instituting a change in the management of the construction process will take an even
greater effort.
If the Affordability Crisis is allowed to continue, the Navy will not be able to buy
the necessary hardware to meet its commitments or adequately protect its personnel. US
Shipbuilders will not be competitive in the world market to win commercial ship
42 contracts. If they are forced to rely on the Navy as their sole customer several of the US yards may be forced to close by the year 2000.
Looking at all of the loops of the Affordability Crisis simultaneously, we see that
there are many ways to reduce the cost of Navy ships. Not all of the of the variables involved in this problem have bee discussed or even thought about. Some of these suggestions may not be realistic in today's political environment. We could, for instance, force the under utilized shipyards out of business by denying them Navy contracts. The yards that have work should be fully loaded with work to increase learning on the contracts available. The representatives to Congress from the states these yards are located may have a difficult time letting a major industry, like shipbuilding, with many well paying jobs leave their state. Congressmen have terms of 2 years. The real benefit of reducing under utilized shipbuilding capacity will not be realized on a national for
several years after the closing. It may never be felt on the local level.
Another suggestion could be to re-assess Navy commitments around the world. If we did not need to commit naval forces around the world, the required Military
Capability of Navy Ships could be reduced. This would immediately reduce the amount
of money we spend on ships. It would also act on the Arms Race Dynamic by reducing
the Pressure for Reciprocating Capability. In the long term it may have the desired result
of reducing the Actual Threat. The problem is that higher authority sets the commitments for the Navy. Reducing the international profile of our Navy may have the desired effect
of reducing the amount of money we spend on ships. It may also indicate to leaders of
43 countries not so friendly to the US that the time has come to push their own national agenda.
The strength of each of the loops needs to be determined using historical data. It may be impossible for improvements in the Commercial Industrial Base loop to come anywhere near reducing the cost of combatant ships to a significant degree. The push for
new technology may make this loop inconsequential. Is it more cost effective to subsidize the construction of commercial ships in this country hoping to reap some productivity gains or to directly invest in new technology for Navy ships? Many experts
say building a warship is an entirely different process from building a commercial ship.
By modeling the Affordability Crisis in greater detail, the insights needed to make good decisions about investments in Navy shipbuilding could be made. Without the tools to
properly address all the aspects of shipbuilding, we may wastefully invest in the wrong loop.
Another suggestion that will be further pursued further in this paper is to fund the construction of high performance commercial ships directly. These ships are more similar to combatant ships in their construction than typical break bulk, container or product carriers. The government would fund the construction and then lease them to
commercial shippers at market rates. The government will need to replace the aging
Ready Reserve Fleet in the next ten years anyway. Why not make these ships commercially viable? The Department of Defense could use these commercial ships as
Sealift assets in time of war. Commercial ship operators could use the superior capability
44 of these ships in peacetime. The increased Commercial Order Book would stimulate increases in US Shipyard Productivity. It would also act to reduce US Shipyard
Overhead. Both of these would act to eventually reduce the cost of building Navy ships.
The time has come to make smarter use of government assets concerning US
Shipbuilding. Several initiatives are underway in the Navy to improve the acquisition process. More must be done than merely putting band aids on the problem. An entirely new way of doing business must be pursued if US Shipbuilders are to reclaim a market in which they once dominated. In the next section, several acquisition reform programs will be discussed. The initiatives aimed at stimulating commercial shipbuilding in this country including MARITECH, NSRP and the Mid Term Sealift Technology
Development Program will also be reviewed in the context of the Affordability Crisis.
Questions that should be asked include what loops do these programs effect and what is the magnitude of the contribution they will make? By taking a more systematic approach, we can look at these programs from a different perspective.
2.2 Acquisition Reform
The goal of Acquisition Reform is cost reduction through adoption of best commercial practices and streamlining advanced technology insertion. The process of
building a ship for the Navy is vastly different from building a commercial ship.
Additionally, the product development cycle time of a Navy ship (10-15 years) can be two to three times the period required to develop a new commercial ship design.
45 Determining what technology will go into a ship 1 5 years in the future is an incredibly risky task. The product development process and the cycle time must change if the Navy wants to reduce the cost of buying ships. In order for the US Navy to take advantage of best commercial practices, a viable commercial industrial base needs to exist.
This section examines several of the acquisition reform programs, COTS and
Standards and Specifications Reform, and the ATC program. These programs will then be viewed in the context of the Affordability Crisis to determine which dynamic loop they affect.
2.21 - Commercial Off The Shelf (COTS)
The Cold War forced the military to push for better and better technology at any expense. Huge amounts of money were expended to develop the technology that would allow the US military to maintain a tactical advantage. To address specific military requirements for products a system of Military Specifications and Standards (MILSPEC
and MILSTD) were developed. The standards ensured the product met all requirements of the military. Many commercial applications grew out of this Defense initiated research program. In many cases, the commercial applications became more capable and less expensive as they went through several generations of product development in the private sector.
In the past few years, the technology trend has reversed itself for many products.
For example, the military no longer drives the push for smaller electronic components or
46 faster microprocessors. Commercial products are demanding faster data transfer rates and more computing power than most military applications. The Navy, however, has been stuck with the requirements of a MILSPEC product that may be less capable and cost much more than the commercial product. The COTS program calls for increased use of commercially available equipment. This allows the Navy to take advantage of the cost
savings from new technologies developed in the private sector. Clearly all the needs of the Navy can not be met by the commercial sector. Commercial products in general are
not designed to go to war. However, as much of the common architecture as is feasibly possible should be bought "off the shelf."
COTS will help to improve the Affordability Crisis. It reduces the cost of adding
Required Military Capability. By choosing a commercially viable product, the cost of
research and development associated with putting that piece of technology on a ship is greatly reduced. When upgrades are required, a standard commercial interface will usually allow a quick transition to the next version. For a military upgrade, the old system more times than not will need to be torn out and replaced with a new unit. By using more commercially available equipment, the development and acquisition costs of
Navy ships will be reduced.
2.22 Standards and Specifications
The Department of Defense has relied in the past on MILSPEC and MILSTD to
describe exactly what it needs for a certain applications. Standards have been used to
ensure the equipment meets all the rigors of a military environment. Many of the
Standards and Specifications have been "written in blood" of sailors who relied on
47 substandard equipment. Every time an accident occurred, another specification was
written to ensure it didn't happen again. Over the years, the number of different specifications has grown to a staggering level.
In the past few years, many of these specifications have become obsolete. The military industrial base to supply many of these parts has undergone significant
downsizing as well. In many cases the Navy is faced with products that have a single or no supplier. The lack of competition for these products has allowed an increase in costs.
Without a wider commercial base for these products, they become custom made for the
military. One example is steel plate. Bath Iron Works is forced to buy MILSPEC DH-36 steel plate to use in the DDG-51. The steel suppliers will only produce this particular
plate in large lots. This requires Bath to purchase all of its steel plate in one lot during
the summer. The inventory then sits for up to a year before it is used. The cost of maintaining excess inventory has become a hot topic among shipbuilders as they move to
Just In Time (JIT) manufacturing. Bath has been able to work out arrangements with
many of its sub-contractors to provide parts on a 72 hour basis. The plate manufacturers could support this if the plate required was not MILSPEC.
Another aspect of the problem is that a commercial product may be available that
offers superior performance at reduced prices. Standards and Specifications reform is aimed at being smart about procurement. The barriers to making smart decisions need to be eliminated. In June of 1994, Secretary of Defense Perry called for the use of
"performance standards or non government standards to define new systems and system
48 modifications. Military specifications are only to be used as a "last resort", with an
appropriate waiver "10
Looking at the Affordability Crisis, the Standards and Specification program
should also act to reduce the cost of providing Required Level of Capability to the Navy.
By removing the barriers to less expensive alternatives, the Navy promotes competition
among suppliers that should result in less expensive components.
COTS and Standards and Specification reform played a large role in the LPD-17
acquisition program. This ship was just recently awarded to the Avondale/Bath team.
Most of the ship had been designed by the time Secretary Perry discussed his vision for reforms. Much effort was expended to sanitize the contract of government specifications
after the fact. More of an impact will be felt if these reform measures are implemented
during preliminary design. Despite its late start, COTS and Standards and Specifications will have a significant impact on the end cost of the LPD-17. Quantifying this impact will be critical for proponents who want to continue the movement away from
MILSPECs. Without a way to measure the long term benefit of these programs, the process may revert to the better known MILSPEC methods. If future programs are as attentive to what they ask of the contractor, the cost of building Navy ships could be reduced.
10 Perry, W.J., (1994), Specifications and Standards - A New Way of Doing Business, SECDEF Memorandum, 29 June 1994.
49 2.23 - The Affordability Through Commonality (ATC) Program
The goal of the ATC program is to improve the process by which the Navy, designs, acquires, and provides lifetime support for ships used in national defense. By standardizing equipment and designs across the fleet, economies of scale could be generated. Reducing the number of different parts in the fleet improves the ability to maintain or replace these parts. By building standard modules, the designs would become more mature.
The increased use of commonality in naval ship design and acquisition will:
• Reduce design requirements and construction time
• Maintain reasonable procurement quantities at the equipment/subassembly
levels
• Improve shipbuilding quality control
• Permit ease of maintainability and upgradibility.
The ATC program receives its funding through the National Shipbuilding
Initiative established by President Clinton in 1994 to stimulate commercial shipbuilding
in the United States. The approach used to achieve this goal is a combination of modularity, equipment standardization, and process simplification. The ATC office was established to develop necessary strategies, standards, designs, specifications, and procedures to lower costs of fleet ownership with commonality.
" Cable, C. W. and Rivers, T.M. (1992). Affordability Through Commonality. ASNE DDG-51 Technical Symposium.
50 The current Navy order book does not support long production lines on which
productivity improvements could be made. Instead of building many of the same ship,
the ATC program promotes the use of common modules across ship classes. In this way,
economies of scale could be achieved. Prototype modules have been developed for
habitability, machinery/auxiliary systems and combat systems. Reducing the number of
different parts supported throughout the Navy would allow great reductions in the cost of the maintenance system as well.
Another tenet of ATC is process simplification of production, logistics and requirements. Process simplification includes the following:'
• Standard designs for Hull, Mechanical and Electrical (HM&E) systems
• Elimination of unnecessary military specifications and standards
• Procurement of equipment in large lots to support fleet levels
• Generic build strategies at the fleet level
• Efficient standard assembly of major systems and equipment
• More production oriented distributed systems architecture
• Increased concurrent assembly and testing of equipment and systems during
construction
• Fewer different types of systems to support
• Replaceable components and subassemblies to ease upgrade
i: Bosworth, M. L.and Hough, J. J. (1993). Improvements in Ship Affordability. The Society of Naval Architects and Marine Engineers Centennial Meeting.
51 Several other industries have promoted commonality across product lines as a way to reduce costs including the automobile industry. When Ford is set to develop its next pickup truck the product development engineers make a conscious effort to use as many successful components from existing vehicles as is practically possible. This reduces the total product development cycle while providing mature systems intact around which to build the new design. As in the car industry, the use of increased commonality in naval ship design and acquisition can lead to shorter design and construction times.
If cycle times can be reduced, the program costs and risk will also be reduced.
Additionally, the use of common components allows economies of scale to be realized despite the decreasing number of ships being built. Commonality fosters improved quality control and facilitates ease of maintenance and upgrade. Examining the
Affordability Crisis, ATC should contribute in several ways. First, by making ships more common, the database of products offered can be reduced. This allows the use of more mature designs that reduces the risk associated with new product development and the total acquisition cost.
By producing many of the same module, the commercial industrial base could be increased. Perhaps some of these modules could be used in commercial ships or offshore platforms. This would reduce the cost of building commercial ships that could become a competitive advantage for the shipyards. Standard propulsion packages like the LM-2500
52 have been successfully used fleetwide for the last twenty years. Similar gains in
commonality would act to reduce the cost of Navy ships.
While ATC promotes commonality across Navy designs, the problem is that the
program still uses Navy designers to develop the ATC modules. Forcing a shipbuilder to
use a Level III drawing prescribed by NAVSEA removes his initiative to improve the
process. Assuming that these modules could be built the same way for the same cost in
any shipyard is not realistic. Real standardization must come from the shipbuilders and
must be suited to their individual capabilities. They must be allowed to provide their
knowledge to the process. In order for ATC to reach its full potential, the different
program managers of the major ship programs need to choose standard components. Is
the SC-21 program manager going to accept the same combat systems architecture as
LPD- 1 7? How much of the fleet can really be common? How difficult is the integration
of an entire module into a ship design? Is ATC really worth the trouble?
The ATC program also needs to find ways to quantify the savings that increased
commonality can produce. These savings come in many forms including design,
construction, maintenance and upgrade costs. Without a Life Cycle Cost (LCC)
estimating method, the true benefits of ATC can not be balanced against the costs.
Current program managers tend to look only at the savings the program can provide to construction costs. A wider view over the life of the ship must be used in measuring the
ATC benefits. Tools must be developed to provide this big picture perspective to the
program managers and the Navy. "Actual, detailed real life costs to produce a ship are
53 not known. To realize the full cost savings benefit of modularization, supportive ship architectures need to be incorporated in Navy ship designs and must be designed from
" the ground up. !3
2.3 Commercial Shipbuilding Initiatives
The commercial shipbuilding market has been described as a "dog fight where nobody makes any money. " Indeed the profit margins in an industry that faces huge over capacity are low. Many countries, including Japan and Korea, have propped up their national shipbuilders to gain a dominant portion of the market. With a large order book, the market leaders have been able to upgrade their practices and implement new technology into production lines. The rest of the participants in the commercial
shipbuilding world, U.S. yards in particular, have been left behind in terms of cycle times and productivity. Without proper market forces to correct for these government subsidies, the glut of excess tonnage will continue.
The National Defense Authorization Act of 1993 lay the groundwork for a comprehensive plan to ensure that U.S. shipyards could eventually compete in the international shipbuilding market. From this act comes a plan that attempts to:
• Ensure fair international competition —
13 Bosworth, M. L.and Hough, J. J. (1993). Improvements in Ship Affordability. The Society of Naval Architects and Marine Engineers Centennial Meeting.
14 Buttner, S., (1997) Interview conducted at MIT.
54 • Improve domestic competitiveness
• Eliminate unnecessary government regulations
• Finance ship sales through Title XI loan guarantees
• Assist International Marketing
The benefits of this legislation are starting to materialize. Some commercial work
has been stimulated although the jury is still out over whether this has improved
productivity in warship construction. It may be time to revisit this initiative and to
redirect its efforts to more productive areas. Some suggest a return to the Construction
Differential Subsidy of the seventies . Others call for tax benefits for shipbuilders.
Finally a call has gone out for increased funds for education. All of these are good ideas.
Some will have a more immediate effect than others. Again the problem is quantifying the true impact of any of these programs individually or comprehensively.
2.31 MARITECH
Several foreign shipyards have established themselves as market leaders in international shipbuilding. The Marine Systems Technology (MARITECH) program has been designed to promote technology transfer, process improvements, product development, and productivity and quality enhancement in US shipyards. Ishikawajima-
Harima Heavy Industries (IHI) Marine Technology in particular has been tapped for its expertise as a world class shipbuilder by several U.S. yards. Focus areas include shipbuilding standards, producibility, productivity, and shipyard management.
15 O'Neil, D.A., (1997) Is Our Military Unwittingly Helping to Scuttle the US Merchant Marine?, Sea History 80, Winter 1996-1997.
55 MARITECH is a government cost-sharing program established by President
Clinton in 1994 to assist defense department shipyards in the research and development of new designs for commercial ships. The program has generated several interesting ship
designs in this country. It remains to be seen if the domestic ship owners are willing to invest in American built ships when they can buy less expensive ships overseas.
Looking at the Affordability Crisis, the MAR] TECH program attempts to increase
U.S. Productivity using best practices from foreign yards. If the positive feedback loop that drives the costs of U.S. Ships can be properly stimulated, the commercial industrial base may see an increase in Order Book as the Cost Differential swings more in favor of
US yards. The increased commercial work will lead to further improvements in
productivity and eventually additional cost savings. The initial stimulation of this
feedback loop is the critical component that is currently missing.
The differences between building conventional commercial ships like tankers and bulk carriers and combatants may not facilitate increased productivity across product lines. Perhaps high performance commercial ships may be the answer to improving the construction of combatants. Several designs are currently available that attempt to capture a high end container market. These designs use high performance hull forms and advanced propulsion systems. If a commercial market for these type vessels could be established, real savings on combatant ships may be realized while regaining a substantial share of the commercial market.
56 2.32 National Shipbuilding Research Program (NSRP)
The Merchant Marine Act of 1936 as amended in 1970 established the NSRP for the purpose of providing a forum for productivity and technology improvements for the
U.S. shipbuilding industry. The mission of the NSRP is to "collaborate with shipbuilders in developing plans for the economic construction of ships." Nine panels have been established to allow interaction between industry, the Navy, and academia. These panels include:
SP-1 Facilities and Environmental Concerns
SP-3 Surface Preparation and Coatings
SP-4 Design/Production Integration
SP-5 Human Resources Innovation
SP-6 Marine Industry Standards
SP-7 Welding
SP-8 Industrial Engineering
SP-9 Education
"The NSRP is a nationally recognized model for government/industry research program.
It has made a significant effort to maintain the industrial base needed for national
security" 1 '' If this is the case, then why can't any U.S. shipbuilders produce a commercial
Rivers, T.M., Schiller, T.R., (1995) Naval Affordability: Right Heading, Wrong Course, Annual Meeting of the Society of Naval Architects and Marine Engineer.
57 ship as fast or as inexpensively as Japanese yards? The NSRP may provide the forum for
discussion but it seems obvious that the time has come for action and not words. To get
real improvements in productivity, revolutionary change is needed in the domestic shipbuilding industry. Years of surviving on government contracts has ended. The shipyards that cannot adapt and become more efficient need to be allowed to be driven
out of business regardless of the political ramifications. Shipbuilding is an industry subject to market conditions. If the US government does not allow the market to weed out the dead weight, real productivity gains will never occur. The only true competitive
advantage is the ability to innovate faster than your competitors. If US shipyards are not forced to innovate based on market forces, they will never become competitive on a world level.
The NSRP hosts a Ship Production Symposium annually. The major shipbuilders come together to discuss the industries problems and to try to find ways to solve them.
Although some progress has been made, it seems the shipyards are not yet hungry enough to make radical improvements to the way they build ships. Many of the papers presented were interesting and generated discussion. They included modularity and product model development. These were the same topics presented at the symposium back in 1993!
When will these ideas finally begin to catch on in the industry?
When viewed in the context of the Affordability Crisis, the NSRP acts to increase
US Productivity by stimulating change in the industry and introducing best practices from
58 world class shipyards. The NSRP carries out an important function although the benefits are hard to quantify.
2.33 Mid-Term Sealift Ship Technology Development Program (MTSSTDP)
The MTSSTDP is a program that uses the shipyards, university personnel, vendors, design consultants and the NAVSEA Shipbuilding Support Office
(NAVSHPSSO). The major objectives of this program include:
• Construction Contract Cycle Reductions
• Initial Acquisition Cost Reduction
• Replacement of MILSPEC Equipment with commercially acceptable versions
• Development of Enhanced 3-D Design Tools with access to Expert Systems
for Lessons Learned
• Identify and recommend change within the NAVSEA acquisition process
One significant contribution of the MTSSTDP has been the evaluation of dual use
ship designs. The main objective of this effort is to stimulate commercial shipbuilding while producing valid assets that can meet the U.S. surge and follow on Sealift requirements in the future. The program attempts to produce designs for a container ship that can compete in commercial markets. This ship would also have installed National
Defense Features (NDF) allowing it to be rapidly converted to a military useful ship in time of national emergency.
59 When viewed in the context of the Affordability Crisis, this program makes perfect sense. To meet our transportation needs, the United States has relied on commercial shipping to provide Sealift capacity in time of war. In the eighties, the government chose to purchase excess commercial ships and maintain them in a reduced state of readiness in the Ready Reserve Force (RRF). Experience during Desert
Shield/Desert Storm indicates this may not be the most effective way of acquiring capability. The "mothball fleet" was much harder to activate than originally anticipated.
Many ships on a five day alert status required several weeks to get underway. Foreign container and break bulk ships were chartered to make up the shortfall in RRF assets. In the next national crisis, foreign assets may not be available to pick up the slack for the
RRF.
The cost of maintaining the RRF at the pier in a degraded state of readiness should be traded off against subsidizing the construction of new commercially viable container or RO/RO ships. With the proper NDF features, these ships could be immediately used in time of war. In peacetime, they could be used to deliver cargo in
Jone's Act trade or in the international markets. The Future Technology Variant (FTV) is the design proposed by the MTSSTDP. A commercial operator, Crowley, evaluated this
ship and determined it to be not commercially viable when compared to a similar ship currently in operation. The subsidy to make up the difference in operating costs would be over $2 million dollars/year. 17
Crowley Report Assessment of FTV, March, 1997.
60 A better suggestion would be to start with a commercially viable high performance container ship like FASTSHIP Atlantic or BATHMAX 1500. The only subsidy required from the government may be a construction subsidy for installation of
NDF items and perhaps some guaranteed military cargo for the first few years until high value markets can be stimulated. If this high speed container ship concept gains market share, the US may be able to capture the high value container market while providing a superior asset to military planners in time of war.
2.34 Lean Shipbuilding Initiative
Another program that is in the very early stages of development is the Lean Ship
Initiative (LSI). This program is in the formative stages at NAVSEA. It attempts to combine industry, the Navy, and academia to study the way ships are manufactured in this country and to find ways to improve the process. Womack, Jones and Roos define the basic Lean principles in their work, "The Machine That Changed the World," that examined the automotive industry. The Toyota management, design and production methods were investigated and determined to be superior to the mass production techniques used in this country. Several large domestic automotive firms including Ford and GM have chosen to make themselves more Lean as a result. Roos updates this work with the current diffusion of Lean principles into other industries."
Womack and Jones, (1996), Lean Thinking, Simon and Schuster, New York, NY
61 Lean approaches have had great impact in the domestic automotive, aerospace and other complex manufacturing industries. In some cases, these industries were in grave danger of being forced out of the market in which they operate. Japanese firms could produce similar products at higher levels of quality for less money. Adapting Lean
principles calls for a revolutionary change to the way a company deals with its customers, suppliers and employees. This change will result in the breaking of established
paradigms. It can be a very hard transition to make. It has also become necessary in the international, inter-connected world of today.
The key Lean principles include:
• Perfect first time quality through a quest for zero defects, revealing and
solving problems at their ultimate source, achieving higher quality and
productivity simultaneously, teamwork, and worker empowerment
• Waste Minimization by removing all non-value added activities making the
most efficient use of scarce resources (capital, people, space) just-in-time
inventory, eliminating any safety nets
• Continuous improvement (reducing costs, improving quality, increasing
productivity) through a dynamic process of change, simultaneous and
integrated product/process development, rapid cycle time and time to market,
openness and information sharing
• Flexibility in producing different mixes or greater diversity of products
quickly, without sacrificing efficiency at lower volumes of production,
through rapid set-up and manufacturing at small lot sizes
62 • Long term relationships between suppliers and primary producers (assemblers,
system integrators) through collaborative risk-sharing, cost sharing and
information sharing agreements built upon a sense of mutual obligation,
openness and trust.
The domestic shipbuilding industry is ripe for revolutionary change. If ever an
industry was the opposite of Lean, shipbuilding in this country fits the bill. After touring
five of the six major shipyards in the past year, it is my observation that none of the key precepts of a Lean organization are being used. The relationship between the government
and the shipbuilders is adversarial. Because protracted disputes with the government
often lead to financial duress, the prime contractor usually squeezes its sub-contractors for every last penny as well. Piles of inventory and work in progress (WIP) were the
norm instead of the exception. Some of the smaller shapes produced at Bath Iron Works, for example, were stored in an open field under snow after being manufactured.
Employee relationships were strained as the shipyards constantly look for ways to cut
costs. The easiest way to reduce overhead is to layoff workers. This problem was
observed at every shipyard visited. It will be discussed later in Chapter 5.
Lean manufacturing holds great promise for shipbuilding. Shipbuilding can be considered a cross between a craft trade and a mass production trade. The products are very complex and built in small numbers. Many of the sub-assemblies that are used to
Lean Sustainment Initiative - Massachusetts Institute of Technology
63 build ships have very similar characteristics. If we consider these sub-assemblies the products and make them as common as possible, an agile manufacturing process could be developed to produce the different components in the same way on the same machines.
Japanese shipbuilders are able to produce military and commercial ships similar to those built in the U.S. using shorter cycle times and with fewer man hours. A comparative study of US and foreign shipbuilders, outlined in Table, quantifies the
20 differences between the foreign and domestic yards. The product of interest is the construction of 54,000 dwt tankers.
Productivity Japan Korea Germany US
Employee-Days/Ship 45,000 99,000 65,000 100,000
Hourly Compensation (1990 US Dollars) 16.00 7.8 26.5 15.6
Total Labor Charges ($ million) 5.76 6.17 13.78 12.48
Table 2-2 - US vs Foreign Productivity
As U.S. shipbuilders try to get back into the commercial ship building market, they will need to compete with the Koreans and the Japanese. The wages for US workers have dropped below the level of much of the foreign competition. The real area in which
improvements need to be made is worker productivity.
20 Simmons, L.D., (1996) Assessment of Options for Enhancing Surface Ship Acquisition, Institute for Defense Analyses, Alexandria, VA.
64 Instead of competing directly on standard container ships and tankers, several yards have announced plans to investigate the high performance shipbuilding market.
Cruise liners, high speed ferries and fast container ships are more complex than product carriers or tankers. They have more in common with the warships U.S. yards are accustomed to building. Either way, adjusting their operations to becoming more Lean can only help US yards. With a leaner industrial base that can compete internationally, the Navy may be able to realize cost savings as the processes used in U.S. yards improves.
The principles associated with Lean manufacturing have been discussed in the industry individually as improvements to the process. Many yards have used foreign technology transfer programs under NSRP during the 1980's. These yards tended to pick
one or two good ideas to on which to concentrate their time and money. Bath is trying to
cut its working inventory from 9-12 months down to 2 weeks. Ingalls is moving to
Integrated Product Teams internally to get cross trade improvements at the design level.
NASSCO is trying to choose standard component parts that can be aggregated into all of
the complex units needed to build a ship. If the parts at the lowest level of manufacturing
are common, economies of scale can be realized. It then becomes a process management problem to put these pieces together in an economical way. If implemented individually, these measures will have some impact but not realize their true potential.
To really make a difference in the industry, more needs to be done. The
government needs to rethink the way that contracts are let. The government acquisition
65 strategy needs to take into account the long term needs of the shipbuilder. Long term relationship with sub-contractors needs to be cultivated which contributes to Just In Time delivery of components. The entire Lean package must be put in place. This will cause great angst in the industry. By taking a broader systems view of the industry, we can find
the true leverage points on which to concentrate. It may require closing some of the privately owned yards that survive on defense work and starting with a clean sheet of paper. The reopening of the Quincy Shipyard offers a unique opportunity to view the
retooling of a shipyard from the beginning. Clearly, the status quo is not satisfactory.
Real change, initiated by the only real customer, the government, is required. Hard decisions need to be made. The sooner they can be implemented, the sooner the domestic
shipbuilding industry can become world class again. The first step to improving the
process is understanding the complexities involved. One method for identifying and
dealing with complexity is a Build Strategy which will be discussed in the next section.
2.4 Build Strategy Development
New product development has been the topic of studies in many industries over the last few years from software development to the automotive industry. The technicians at Toyota, with their Lean production methods, seem to have mastered the
product development process by bringing all the critical-personnel together early in the project. All the difficult decisions concerning the design and production of the new product are discussed and formalized. In this way, the design does not need to go through
66 21 generation after generation of change as the development process matures. Similarly,
Japanese shipbuilders have shown that by investing critical time before the start of
construction to plan and integrate all the processes involved in the design and construction of a ship, great improvements in performance can be achieved.
For U.S. shipyards to compete with the Japanese for commercial ship contracts, a
thorough understanding of the product and process is required. A Build Strategy goes a long way towards identifying exactly what the product consists of and the process that
will be used to manufacture it. Three critical components of any project are coordination, cooperation and communication. The Build Strategy acts as a facilitator for each of these components.
2.41 Description
Any complex project requires an in depth plan of action and milestones for proper
execution. Shipbuilding is no different. All shipbuilders plan how they will take the customers' requirements and coordinate their assets to satisfy them. The plan may be the
result of a detailed analysis conducted by many people or it may be one experienced
manager's vision of how things should be done. This plan, in shipbuilding, is defined as
21 Womack, J.P, Jones, D.T., and Roos, D., (1990), "The Machine That Changed the World," Rawson Associates, New York, NY.
67 the Build Strategy. "A Build Strategy is an agreed design, engineering, material management, production and testing plan prepared before work starts, to identify and
" integrate all necessary processes. It represents the culmination of many decisions that must be made by the company to remain competitive yet produce a quality ship.
A Build Strategy does the following things for a company:
• Applies a company's overall shipbuilding policy to a specific contract
• Provides a process for feedback between design and production to introduce
production engineering principles that can reduce ship work content and cycle
time
• Determines resource and skill requirements and overall facility loading
• Identifies shortfalls in capacity in terms of facilities, manpower, and skills
• Provides baseline schedule for production planning and ordering of long lead
time material
• Identifies and resolves problems before work on the contract begins
• Ensures communication, cooperation, collaboration, and consistency between
the various technical and production functions
The problem with a Build Strategy is that it once it is completed it becomes a
static document. Once the project starts, the Build Strategy goes on the shelf as "...the
22 Lamb, T., (February 1994), Build Strategy Development, The National Shipbuilding Research Program, Carderock Division, Naval Surface Warfare Center, Bethesda. Maryland
68 perfect plan that never was." All the work and decisions that went into the development
of the strategy are filed away until the next ship project. This is why many shipyards
know what a Build Strategy is but do not find the value added in producing a new plan
23 for each ship. If the Build Strategy could be made interactive where the production
planners could actually revisit their decisions as the project progresses, they may get
more use out of the effort. In this section the components for a Build Strategy are
described. These components will be described in more detail in the Build Strategy
Document found in Appendix A and then converted into structure and policies in the Ship
Production Model.
2.42 Components
The Build Strategy should make all assumptions and objectives about a project clear to the project management team, the workers executing the plan, and the customer.
The Build Strategy represents the culmination of all the shipyard's experience, resources
and capabilities. It is critical for each yard to know its strengths and weaknesses and to
know when it is reaching a constraint in the system. If a constraint needs to be
eliminated, it is critical to know what the next constraint may be. Proper planning can
avoid many of the difficulties associated with the constraints of a yard. Equally critical is for the customer to know and understand these constraints. If a certain change order will
result in a disruption of the core business or delay delivery of the ship, it is imperative that the customer know this. A lack of understanding for the true cost of change made
23 Lamb, T., (February 1994), Build Strategy Development, The National Shipbuilding Research Program, Carderock Division, Naval Surface Warfare Center, Bethesda, Maryland
69 late in a project has resulted in many disputes between the shipyards and the government.
If the shipyards had the tools to demonstrate the true cost, many changes may have been reserved until the next ship in the series.
The components of a Build Strategy include:
Ship Description
Applicable Regulations
Quality
Contract Requirements
Product Work Breakdown Structure
Master Equipment List
Design and Engineering Plan
Material Plan
Build Plan
All of these will be described in greater detail in the Build Strategy for a specific ship, Sealift Option, Commercial Viability (SOCV. Many of the inputs and the outputs
will be used in the Ship Production Model. The Ship Production Model is a System
Dynamic model of the construction process. The model makes the Build Strategy
interactive and dynamic. It can be used in the initial stages to try out different hypotheses
concerning staffing, schedule, infrastructure and shop loading. As the process matures it
could be updated using real performance data concerning productivity and quality. It
70 could be used for evaluating different scenarios concerning the project. It takes many of the management decisions needed to create a Build Strategy and creates a dynamic tool.
By using a well-defined Build Strategy with an interactive model, US shipbuilders could gain insight that would have taken years of commercial work to achieve. The use of simulation could become a competitive advantage for US shipbuilders. By being able to "test drive" a project from start to finish without expending significant capital, many different courses of action could investigated. In this way, the "best" plan for how to
build a ship could be determined before one piece of steel is cut.
An interactive model requires that all assumptions and boundaries must be made explicit. The model could be used as a communication tool between the customer and the shipbuilder. Instead of hiding the true objectives from each other, an open and cooperative environment could be created.
The current state of shipbuilding in the U.S. is far from an open and cooperative
environment. The U.S. Navy is the only real customer in the market. For this reason, shipbuilding contracts are fiercely competitive. The low bidder usually has difficulty producing a ship for the promised price. Contractor/customer relations suffer as the
shipyard tries to recoup some of its losses. The use of a Ship Production Model could improve these relationships by making the assumptions of both sides clear. If a dispute over the cost of certain changes occurs, the model could be used as a mediation tool,
avoiding costly litigation.
71 2.5 Dynamic Project Modeling
Dynamic models, like the Ship Production Model mentioned in the previous section, have been used for years to settle many different disputes. Several of these
disputes have involved shipbuilding. The purpose of this paper is to introduce Dynamic
Project Modeling in the early stages of a project as a proactive means of: production planning, hypothesis investigation and communication. Modeling can have a much larger impact on the performance of the project instead of just as a retroactive tool to assess blame.
As previously mentioned, the process of building Navy ships may be one of the most complex processes undertaken in this country. Many groups have a vested interest in Navy ship building programs. The huge amounts of money expended and the nature of the construction process contribute to this complexity. The political ramifications of a large ship contract further complicates the situation as Members of Congress try to
protect the jobs of their constituents. The Navy chooses to competitively bid its contracts adding competitive dynamics to the process. Because of this complexity, some Navy programs result in huge cost over runs and experience schedule delays in delivering the product.
Even the most experienced program manager has difficulty mentally accounting
for all the critical factors involved in a program at one time. People are more comfortable
72 dealing with ideas that are linear and easily quantified. Many factors involved in shipbuilding are dynamic in nature, meaning they change over time. Most of the factors described in the Affordability Crisis are out of the program manager's control. Many of the problems he/she must deal with are exogenous to the shipyard. The dynamic variables, like quality and productivity, associated with shipbuilding are not so easily measured. Even when they can be measured, they do not represent the current state of the system as they are constantly changing. The causal nature of product development projects has been well documented in other System Dynamics. Managers understand and can describe feedback acting in the process. From experience they can say that changing this will have an impact on that. Assessing the strength of several causal loops
or quantifying the relationship one variable has on another is not easy in the abstract. For this reason, many important decisions are made based on "gut feel."
Systems Dynamics is a field developed in the 1960's by Professor Jay Forrester at
MIT to try to quantify "gut feel." He felt too many decisions were being made for the
wrong reasons. By systematically defining all the variables in a problem using mathematical relationships, the problem can be reduced to black and white instead of
shades of gray. These mathematical relationships can then be tuned based on real life
data to provide a mathematical representation of the world. This representation is subject to the assumptions and boundaries used to create the model. In the next section, the
24 Ford, D. N., (August 1995), "The Dynamics of Project Management: An Investigation of the Impacts of Project Process and Coordination on Performance," PhD Thesis. Sloan School of Management. Massachusetts Institute of Technology. Cambridge, MA.
73 models that deal with the shipbuilding industry will be discussed. These models have been used effectively by very few people. The time has come to use System Dynamics models to address many of the questions raised in the previous sections of this chapter.
2.51 History - Ingalls Case Study
Project modeling has become one of the most popular uses of System Dynamics
in the field. Professor Edward B. Roberts, an original student of Jay Forrester, pioneered this approach at the Sloan School of Management. His doctoral dissertation concerning
"The Dynamics of Research and Development," in 1 962 has led to many further studies at Sloan of Project Dynamics. Professor Roberts founded the consulting firm Pugh-
Roberts with another of Jay Forrester's students, Alexander Pugh. Pugh-Roberts specializes in building complex System Dynamics models for clients in many fields.
Many firms have found this method very useful to gain insight into the operations and management of their businesses. These firms include major automobile manufacturers, semi conductor companies, chemical companies, shipbuilders and a growing number of others. The System Dynamics approach allows firms to capture the causal relationships and non-linear behavior of the manufacturing processes. Several firms including, General
Motors and Eastman Kodak, have internalized the process of System Dynamics modeling and consider this process a major competitive advantage. They have used models to examine their own company, the competition, and the market in which they operate.
Interestingly, the project model that has gained the most notoriety in the field of
System Dynamics is the Shipbuilding Model built by Pugh-Roberts Associates in support
74 of a delay and disruption case by Ingalls Shipbuilding against the U.S. Navy. The claim arose as a result of significant change orders submitted by the Navy on the LHA and DD-
963 contracts of the mid '70s. The hard core costs of these changes were generally agreed upon. Hard core costs consist of the material and man hours needed to accomplish a task. What was not agreed upon was the cost of delay and disruption caused by these
changes at an advanced stage in the execution of the contract. It is much more difficult to quantify delay and disruption than the hard-core costs. The claim amounted to nearly
$500 million dollars, a sum that could have put Ingalls out of business if not recouped.
Both sides agreed some delay and disruption was justified. The difficult part came in determining what would have happened if the Navy did not order changes.
Many other factors were discussed as possible contributions to the cost over run.
Material delays and a labor problem resulted in some loss of time. Problems with the new designs led to significant internally generated change. The role of the model in this case was to "...develop and use a methodology that would (a) correctly quantify Navy responsible delay and disruption costs in the design, procurement, planning, and production stages of the programs, and (b) demonstrate the cause and effect relation of
"2S the costs to the items cited in the 'hard-core ' segment of the claim. It was able to
simulate the performance of the project to a high degree of accuracy. It was then able to determine how much of the disruption was caused by Navy generated change orders.
25 Cooper, K. G., Dec 1980, "Naval Ship Production: A Claim Settled and a Framework Built.'*, Interfaces,
Vol. 10, No. 6.
75 This model has been credited with significantly contributing to the settlement of the case in favor of Ingalls for $447 million dollars.
Ingalls has since used this model to improve the management of their shipbuilding
processes. The extent to which Ingalls still uses this model will be discussed in the
Chapter 3 on shipyard visits. That the management was able to take ownership of the
model and use it for purposes other than litigation is very intriguing. A visit to Ingalls was conducted to investigate the effectiveness of this model and to determine to what
extent it was being used. Perhaps System Dynamics modeling is a valuable tool that the
Navy has thus far overlooked in the management of complex projects. Ken Cooper, a senior manager at Pugh Roberts infers at the end of his discussion of the model that perhaps a similar model could be used to the positive benefit of both parties. If both the
Navy and the contractor had a systems view of the construction process, perhaps the inevitable conflicts that arise during the management of any large complex construction
program could be more readily resolved at a local level.
This model is very large in comparison with other project models. It depicts the entire shipyard in considerable detail, modeling the processes of several shipbuilding programs. The sectors modeled include:
• Acquisition and Utilization of Manpower
• Scheduling and Performance of Work
26 IBID
76 • Rework Generation and Scheduling
• Managerial decisions at different levels within the organization
The model captures the feedback and non-linear way the different sectors interact.
Each shipbuilding program contains multiple phases of design and construction. These phases include system and detail design, material procurement, production planning and control, and four stages of ship construction. In each phase, manpower utilization of several trades, the accomplishment of work, the creation of rework, productivity, and
technical complexity are all represented.
The phases interact with each other. Detailed design has a great impact on the accomplishment of work phase. If detailed design drawings are incorrect, work done in the production phase will be done wrong as a result. This creates a management dilemma. Do we fix the problem with rework, scrap the old and remake this particular
component, or do we go forward with errors intact? The schedules of all phases are interdependent. Difficulties or delays experienced in upstream activities can result in future delays or require out of sequence work in later phases. If material ordered for the
On Unit construction phase does not arrive on time, the entire module may be delayed until a replacement can be found. The entire build strategy may be disrupted as a result.
The model was constructed over a period of two years by a small working group including shipyard personnel and consultants from Pugh Roberts. Interviews were
77 conducted with managers from all phases of shipbuilding as well as experts in government contracts and litigation. A massive amount of data was collected and analyzed to assemble a preliminary mathematical model of a single phase of construction.
The model was reviewed by the project team and structural changes were made.
Extensive statistical testing of the model was used to tune the model. In the end, the model was able to replicate most of the major performance measures associated with the project to a high degree accuracy.
Several key structures were developed in this model that have become standard for project models in general. These include:
• Rework
• Labor Allocation
• Overtime
• Interaction of Phases
All of these will be incorporated into the Ship Production Model presented in Chapter 4.
The participation by Ingalls management created a tool that has great potential. It combines the experience of years of shipbuilding in an interactive and dynamic model.
After the settlement of the claim, Ingalls was able to use the model to its benefit. How it
is currently used at Ingalls is the topic of the next section.
2.52 Ingalls Internal Use of the Shipbuilding Model
78 The Shipbuilding Model was the product of years of work investigating,
analyzing and modeling the way Ingalls build ships in its yard. Many of the critical items
identified for incorporation in a Build Strategy are present in the model. Ingalls makes
use of simulation to improve their internal management practices. The Shipbuilding
Model developed by Pugh Roberts is still in use today. It is maintained and calibrated by
Pugh-Roberts consultants. It is used as a strategic tool by upper level management
although it has had an impact to much lower levels in the yard. Specific uses include:
Bid/Risk Analysis
Competitor Bid Analysis
Program Management Assistance
Change Management
Benchmarking/Evaluation of Best Practices
Evaluation of Process Changes/Transitions
Dispute Avoidance/Resolution
Program Manager Development
During the visit to Ingalls, a meeting was conducted with the simulation group who work directly with the model. They were asked to provide specific cases in which the model was used. The group pointed to:
• Evaluation of infrastructure constraints: Would a new Butt Welder improve
the throughput? What is the real choke point for the manufacturing phase of
79 construction? The model indicated that the Butt Welder was no the
constraining factor.
• Manning Assessment. How many people does it really take to build a DDG?
Historically the level was set at 1 100 people. The Strategic Model indicated
the ship could be built with 850 with no loss in schedule. The production
people claimed there was no way this could be done. Finally senior
management cut production personnel to 850. The model turned out to be
correct. The same work could be done with 250 fewer people in the same
amount of time. The current manning levels on the DDG-51 being built at
Ingalls is 850 people.
• Assess the impact of 3-D CAD on the shipbuilding process. The Navy has
been pushing for 3-D CAD. The shipbuilder wanted to know what the impact
this large investment in software would have on the bottom line cost of
building a ship. The modeling group was able to quantify a savings of only
$200K/ship as a result of the new CAD package
• Shipyard Loading: What is the impact of emergent new work? The USS
Gonzalez runs aground in the Caribbean and needs to be dry docked and
repaired. Will this work package disrupt our core business? The
determination was made that work would negatively impact core business. A
bid on the emerging work was not submitted.
• Hiring Firing Policy Formulation: What does it really cost to cut experienced
labor? Model determined that it is more economical to maintain hull and
80 mechanical people doing less complex barge work than laying them off. Even
though Ingalls may take a loss on the barge work, they avoid much larger
penalties trying to find qualified labor when needed. This is perhaps the most
valuable insight provided by the model. Every shipyard visited mentioned the
problem of finding good workers when needed. Every shipyard also
mentioned cutting their work force when the order book is low. Only Ingalls
was able to quantify the cost of rehiring these people or training replacements.
This topic will be visited in the analysis section of this paper as a case study.
The simulation group indicated they had some problems with the model. The group felt the model was not agile enough for everyday use. Much of the large structure
used in the original litigation case is still present in the model. They were frustrated that
it was a legacy system with assumptions which are not documented. Because of this the
simulation group is not able to examine the shipyard on the level that can be used on a weekly or monthly basis. They would like to be able to disaggregate to the level where
the true impact can be realized. The strategic model is not as flexible a tool as they
would like.
The simulation group would like to make use of a Graphical User Interface (GUI)
that is available for more current System Dynamics modeling packages. The present model, built in DYNAMO, displays inputs and outputs but not model structure and equations. The group would like to be able to examine the model equations. They would
81 also like to be able to modify structure as needed to provide a wider range of simulation topics.
Ingalls has a great advantage due to its previous use of Dynamic Modeling. The management team understands the systems approach. They know that carrying additional
people until the next peak in production pays off in the end. After twenty years, it is clear that the model used at Ingalls needs an overhaul. Current System Dynamics software packages like ITHINK or VENSIM provide a user friendly interface to investigate the model equations and make local changes. Pugh-Roberts could go a long way to helping
the Navy define what is needed to help all of the domestic shipyards take advantage of this type of simulation.
2.53 Halter Marine
Another example of the use of System Dynamics for shipbuilding is the Halter
Marine Case. The model used in this case was also built by Pugh-Roberts. A graduate student at Sloan School of Business, Kim Reichelt, examined this case for her thesis.
Because most of the models used by Pugh-Roberts are proprietary, examining the
equations and structure they use is impossible. This case study provides an interesting look at commercial shipbuilding. Many of the conflicts experienced in Naval ship construction also occur in commercial shipbuilding. This case also provides a model that uses much of the Pugh-Roberts project model structure.
82 The dispute in this case was between a shipbuilder, Halter Marine, and a ship owner, Leon Hess. The conflict concerned who was responsible for cost overruns on a
ship construction project in the mid 80's. It was standard practice in the commercial shipbuilding industry to continue with a job whether or not disputes could be immediately settled. Negotiations to sort out the claims of each party were then held after the project was completed. In this way the customer could put his new vessel to work generating income and the shipbuilder could get on with other work. In the Halter case, the customer refused to settle the dispute on terms amenable to both sides. Again, the
shipyard would be forced to go out of business unless it could win a reasonable settlement.
Competitive Dynamics
Several key insights into the dynamics of shipbuilding come out of this work.
First, the bidding process is critical to the entire system. The competitive dynamics of the industry drive shipbuilders to come up with the low bid to win a project. This leaves the customer in an awkward position. If the bids are too low, should the customer hold the yard to a bid he can not deliver? Low bids usually mean the shipbuilder will need to
make money other ways like growth on the contract. If the bid is too low it may also mean that the contractor really does not understand the complexity of the project. A fair
bidding price is critical to the success of a project. All aspects of the project need to be
accounted for. Choosing a builder solely based on bid price is foolhardy at best. If there
is not a thorough review of the proposals for completeness, the program manager is sure to experience a degraded relationship with the builder as nickel and dime dynamics come into play as the contract progresses. The Navy could learn much from this case. During
83 the 1980's, the Navy chose to award contracts based almost exclusively on the lowest bid
price. This has led to a very poor working relationship between the government and
industry as many programs have experienced cost over runs and schedule delays.
The natural reaction is to blame the other party for the cost over run or schedule
slippage. The government blames the contractor for trying to squeeze more money out of
the contract. The contractor accuses the government of changing the contract at an
advanced date. Both sides may be justified in their argument. Determining who is
responsible for what part of the costs fairly is critical to a good working relationship. If
projects remain constrained by impossible cost or schedule goals, both sides are setting
themselves up for a difficult time. Hopefully, the acquisition reform measures that are
being investigated will look hard at the way contracts are awarded. A well thought out
shipbuilding plan with margin for error seems much more attractive than a bid generated
to be the lowest no matter what the real cost to the government and the contractor.
Overhead
Shipbuilding is characterized by a relatively small number of large projects.
Fluctuating orders require frequent changes in yard capacity. "The ability to tailor shipyard overhead to shipyard order book requires special attention. Without this ability, overhead becomes exorbitant. Halter Marine was structured to deal with this
volatility. The company was easily able to cut back its work force by closing mobile
27 Reichelt, K. S. (June 1990) Halter Marine: A Case Study in the Dangers of Litigation. Master's Thesis. Sloan School of Management. Massachusetts Institute of Technology. Cambridge, MA.
84 yards and to expand its work force by double shifting or working overtime. Through
double shifting alone it was able to increase productivity in the short term by around
33%. Every shipyard visited discussed the problem of cutting overhead, both labor and
facilities in lean times. This is a key strategic decision that will be discussed in depth
later.
Labor
Because of the desire to cut overhead, labor relationships between the shipbuilders
and their workforce can be strained. Halter Marine is one of relatively few non-union
shipyards in the country. In its 25 years of operations, Halter never had a work stoppage, strike or even a major labor confrontation. Halter Marine employees were well rewarded
for top performance through the Halter Incentive Program (HIP). It provided cash awards to employees for achieving quality and productivity improvements. Absenteeism at
Halter was less than 2%.
Management
Most of the management at Halter was promoted from within the company.
Internal promotion acted to increase motivation for Halter employees who saw a career
path to which they could aspire. It also gave them added respect for the management as they came up through the ranks.
Product
28 IBID
85 The characteristics of the product can play a large part in the performance of the project. Vessels that are of a standard design with few new components tend to do better than innovative designs. The innovative designs the Navy has used in the past may not
be affordable in the future. If a completely new design is determined to be required, decision makers must be willing to pay the price for the product and process changes that come with new designs. The Cat Tug, built by Halter can be considered an innovative
design. It consists of a large barge driven by a catamaran tug. Halter had difficulty producing what the client actually wanted due to design problems.
The Naval Architecture firm constantly made changes to the contract to improve
the design. The increased scope was to be negotiated after the delivery of the first ship.
This is typical of the way the Navy does business as well. Change orders are used to improve the design after the contract has been awarded. This change throws off the
planning sequence developed in the Build Strategy. It may lead to delays in construction, out of sequence work or a disruption of the core business. Change orders should be kept
to a minimum once the detailed design is set. If there is concern for the quality of the
design, the changes need to be made up front and not after material is being manufactured.
Scope
The shipyard likes increase in scope as it provides more work for their order book.
The Navy has used change orders and increased scope to a varying degree on different
projects. It is critical that this increased scope be properly documented, priced and
negotiated as it occurs to get the real cost of change at certain times in the contract. If
86 change is allowed to be introduced too far into the construction process, the core work could be interrupted. Even removing items from the project can prove detrimental as management may have already expended a significant portion of the money allotted to that item prior to cancellation.
Hiring/Firing
More engineers were needed to deal with the owner directed changes on the Cat
Tug project. Overtime was increased and new people were hired. This action led to exactly the opposite result intended. Instead of an increase in productivity due to more people, the productivity dropped significantly. Two dynamics are at work here. First, the
Rookie vs. Veteran dynamic occurred. New people are hired to fill a gap in the project.
They take some time to get up to speed before they can make a positive contribution.
Experienced people need to take the time to indoctrinate the new people. The total effect
is to decrease the overall productivity of the group. This puts the project even farther behind schedule.
Overtime can work to improve productivity in the short term. It is used throughout the industry to try to limit the amount of fluctuations in the work force. Top managers know they will pay a price in productivity if they need to hire new people. To
avoid this, in times of increased workload, management offers overtime to the experienced workers. Too much overtime leads to fatigue in the workplace. This can cause additional errors to be made, safety hazards and poor employee morale. All of these factors combine to further degrade the performance of the project.
87 While changes were ongoing in the engineering and detailed design phase, construction at Halter began. Large numbers of revisions were being made to the original plans by engineering making the planning and execution of construction difficult.
Overtime was already being required in construction, adding to productivity problems.
Additionally, some major equipment was late in its delivery. The delays in this project started to affect the performance of the yard in general.
Changes continued without Halter being reimbursed. The company began to sink
its own money into the project. The engineering problems got worse further delaying the
project. Almost all of the initial drawing had been issued. Problems with the original drawings required revisions. All of these problems exacerbated construction problems leading to out of sequence work and the use of overtime. New workers were hired to pick up the slack, further eroding productivity. As both budget and schedule pressures arose, morale began to suffer.
Due to enormous losses on the project the HIP was suspended further eroding the morale of the workforce at the Chickasaw yard. Chickasaw soon had the highest absenteeism and turnover in the company which further degraded productivity. Cash
flow problems soon led to Halter losing its position as a market leader. Threats of bankruptcy continued to erode worker morale.
88 Halter was forced to sell to Trinity Marine for $23 million, one quarter of the value of the company only 3 years before. The decline in Halter's value can be attributed to a general decline in the oil industry at this time. The problems with the Cat Tug
project accelerated Halter's fall as an industry leader by weakening its strategic position
in the market and keeping it from developing new business.
The problems with the Cat Tug program were inevitably felt by management as well. Under pressure to increase worker output to get the program back on schedule, managers tend to tinker with their policies. In order for these new policies to have the
desired effect, a period of adjustment is required. This worse before better dynamic further erodes the efficiency of the workforce. If the project reaches such low performance levels that the management needs to be replaced, additional problems are the
result. When new management is acquired, labor productivity will suffer until the new
manager is up to speed.
Summary
Disruption costs are difficult to quantify by either the contractor or the customer.
Neither party is likely to anticipate all of the disruption to the original plan that the change will cause. In general, the hard core costs of the change are quantifiable based on some previous job of similar complexity. Difficulty arises in trying to put the change in the context of the entire project. In some cases the change will be hardly noticed at the
29 Hammon, C, Graham, D.R., (1980), "Disruption Costs in Navy Shipbuilding Programs," CNS 1 149-Vol.
1 /October 1980, Center for Naval Analyses, Alexandria, VA.
89 shop level. In other cases, a ripple effect will occur which impacts every process downstream. The work required to accomplish the change in scope may be done at lower productivity rates than normal work. The disruption caused by this change of scope requires significantly more work than normally would be anticipated.
The causes of delay and disruption or indirect impacts have been well documented. They include out of sequence work resulting in lower productivity. Lower productivity means more hours are required to get the same amount of work done. To compensate for this loss of productivity or poor schedule performance, management may elect to increase overtime for the current workforce or higher new workers. In the short term, more overtime will increase the productivity per day. In the long run however, the
30 use of excess overtime will lead to fatigue, further degrading productivity. Hiring new people will initially lead to a drop in productivity as the more experienced people are forced to train the rookies. Adding more people often leads to having your best people
a 1 spending their time training new people. This can further dilute the team's productivity.
This dynamic is well understood in other industries. Brooke's Law, from software
development, states that adding labor to a late project makes it even later.
All of these effects may be resolved if the scope and impact of the changes to the original plan are realized. With the proper tools, a cost vs. schedule analysis could be
30 Homer, J.B., (1985), "Worker Burnout: A Dynamic Model with Implications for Prevention and Control," System Dynamics Review, Vol.1, Summer 1985 31 Abdel-Hamid and Madnick, (1988) 32 Sterman, J.D., (1992), "System Dynamics Modeling for Project Management," unpublished working paper, Systems Dynamics Group. Sloan School of Management. Massachusetts Institute of Technology.
90 conducted. If schedule adjustment is feasible, delaying the project long enough to work
through the out of sequence work would be the logical choice. If the client demands
adherence to the original schedule, he must be willing to pay for the disruption. Program
managers have not had the tools to do such comparisons in the past. Perhaps with
Systems Dynamics modeling, they can determine the real costs of change and make
decisions accordingly.
2.54 Other Systems Dynamics Models
Several System Dynamics models are in use or being developed that could
provide insight to shipbuilding managers. The most mature of these is offered by Pugh
Roberts. They continue to advise Ingalls Shipbuilding using the Strategic Model
previously discussed and the Program Management Modeling System (PMMS) which
has been used for a variety of industries. "PMMS can reflect differences in technology, productivity, labor utilization, management, government regulations, business culture,
"& and political environments that exist from one industry or one country to another.
Other shipbuilding clients have included Newport News Shipbuilding and Electric Boat.
No formal reports or documents have been generated concerning the impact of Systems
Thinking on these yards. It would be in the best interest of the Navy to pursue tools like
System Dynamics to aid in understanding the shipbuilding process.
33 Management Simulation Group of PA Consulting Group Informational Pamphlet
91 One software package under development that could be used to study the
shipbuilding industry is ShipBuild. This model is being built by Decision Dynamics, a modeling group out of Washington D.C. ShipBuild has been proposed as a planning, analysis and cost estimating tool for simulating the dynamics of shipbuilding activity.
The current version is more similar to a static project planner like Microsoft Project or
Computer Associates' Super Project. The next version will include many of the dynamic features previously discussed. Using ShipBuild, a project could be developed using traditional CPM or PERT methods. The dynamic portion of the model could then be utilized for analysis of different scenarios involving policy changes, design changes, or
schedule vs. cost scenarios as the project progresses. One sector of this model is
provided in the Users Manual. It is shown in Figure 2-9. It contains variables like
Rework, Productivity, Work Force and the stocks and flows of a typical System
Dynamics model.
92 Work Backlog
jquest
Figure 2-9 - Flow of Work Accomplishment During Production
This model contains many of the structures that the Pugh-Roberts project models use.
ShipBuild is a proprietary product so the equations and structure used are not available
for closer scrutiny at this time. The user first identifies the characteristics of the ship to
be built. This is done by laying out the construction tasks in a similar way to creating a
Build Strategy.
A Product Work Breakdown Structure (PWBS) is used to identify the different components that feed into units and then into blocks and "finally into the ship. ShipBuild can go to six layers of aggregation. The man hours and material required to produce
these pieces of the ship is associated with the PWBS. Precedence relationships can be
93 established for the blocks as well. For example, Block I cannot be started until Work
Package I and II are completed.
Different types of tasks using labor pools can also be identified. The schedule for the ship can be defined or automatically calculated based on the labor productivity and the amount of work that needs to be accomplished. Finally any special equipment needed
to construct the ship is input. Once the Ship package is identified, the user can create a shipyard to build the ship.
In the Shipyard Sub-model, the resources available for construction are defined for the yard of interest. The Facilities section allows you to create a facility map and provide capabilities for defining management policies, work stations, and associated equipment. Typical shipbuilding facilities are provided in a Layout Library. These
include items found in every shipyard like:
Blast and Paint
Plate Storage
Surface Prep Area
Plate Burning
Plate Shaping
Sub Assembly Area
Machine Shop
Pipe Shop
Insulation Shop
94 • Electrical Shop
• Block Assembly Area
• Construction Ways
The capacity of each of these facilities areas can be input defining the constraints in the system.
The Management function allows the user to select and define management policies that will be applied to the study during simulation. In the current version, only a few management functions can be examined. These include policies for management response to schedule pressure caused by changes or delays as well as productivity loss from overmanning. In future versions of ShipBuild, rising schedule pressure will trigger a variety of management actions including hiring additional labor, assigning overtime, or
a combination. If too much labor is assigned to the job, the net productivity eventually will decrease as interference between workers starts to occur.
These management policy structures and others are still in the developmental stage. Once they are fully operational and tested, ShipBuild will could be a valuable link between the static production planners and a fully dynamic model. The output from
ShipBuild can come in several forms. Traditional Gantt Charts of the program can be displayed. All of the important variables can be viewed over time. Management policies can be manipulated to evaluate the effect of each policy on schedule and cost.
"ShipBuild gives the model user an unprecedented capability to develop and test
95 alternative "what if scenarios for the purpose of improving both the productivity ofship
" designs and the efficiency ofshipyards. 34
ShipBuild shows great promise for providing a commercial package to
shipbuilders to try their own modeling and simulation. The software package is not yet
available. Because of this fact, I chose to build my own models that could demonstrate the dynamic behavior of interest.
David Ford, in his dissertation, "The Dynamics of Project Management," develops another System Dynamics model which can be used to simulate product development. His model combines many of the structures from previous work at the
Sloan School of Management with new structure he built as a result of his observations of the computer industry. Project performance can be measured in time, quality, and cost.
The model consists of a set of inter-related development phases and a set of management features. Each phase represents a specific stage of the product development process. The later phases depend on the products of the earlier stages. The structures and characteristics found in this model are shown in the Figure 2-10 below.
34 ShipBuild Phase II Users Guide (1996) - Dynamic Simulation Model of Shipbuilding Construction Delays.
96 Process Structure Resources
Phase Dependencies (Quantity Development Activitiels Performance Effectivenes Allocation Cycle Time Defect Rate
Scope Cost Targets
Project Scope Deadline Rework Quality Goal
Budget
Figure 2-10 - Ford Major Sectors
Ford concludes that adding feedback, delays and non-linear relationships to traditional project models results in a better picture of the real world. "Static features and impacts of projects have been extensively researched and applied to project management practice. In contrast, project managers do not effectively understand or utilize the dynamic features of development project structures. These features combine to cause projects to behave in complex ways which are difficult to understand, predict and
„35 manage.
The Product Development Project Model simulates a project that can have
multiple development stages. This is a feature that has been observed in shipbuilding.
The key structures in this model are listed below in with the model references if they exist. All of the references can be found in the bibliography.
35 Ford, D. N., (August 1995), The Dynamics of Project Management: An Investigation of the Impacts of Project Process and Coordination on Performance. PhD Thesis. Sloan School of Management. Massachusetts Institute of Technology. Cambridge, MA.
97 Model Structure References Close Loop Flow of tasks Cooper (1980), Richardson and Pugh (1981)
Internal/External Work Constraints Homer et al. (1993) Recycling of Flawed Work (Rework) Cooper (1980), Kim (1988) Interaction of Phases Cooper (1980), Reichelt (1990) Gross Labor Sector Abdel Hamid (1984), Richardson and Pugh (1981) Labor Allocation AbdelHamid(1984) Workweek Kim (1988) Fatigue Effects Homer (1985), Abdel Hamid (1984) Learning curve/Productivity Abdel Hamid and Madnick (1991) Schedule Pressure Roberts (1974) Perceived vs Actual Progress Roberts (1974), Richardson and Pugh (1981) Schedule Estimates Abdel Hamid (1984) Project Quality Fiddeman, Oliva, and Aranda (1993) Project Cost Abdel Hamid and Madnick (1991)
Table 2-3 - Ford Model Structures
Ford's model requires reconfiguration to depict the shipbuilding process. It was originally used to examine computer product development. This model has proven very
valuable as an example of how to tie everything together for a multiphase project model.
The complexity of the model and the fact that it is written in Dynamo made refining it for my purposes too difficult.
None of the models listed above were suitable for the level of analysis of this
paper. The simulation done in this paper is used for proof of concept and to demonstrate the potential of the tools. To tune a System Dynamics model to real situations requires much more specific data and calibration. For this reason, a simpler model, the Ship
Production Model is created. This model is built using VENSIM developed by Ventanna
36 Lyneis, J.M., (1980), Corporate Planning and Policy Design., Cambridge, MA, The MIT Press.
98 Corp. Several of the project structures used are found in the Molecules, a supplemental
package to VENSIM provided by Professor Jim Hines of the Sloan School of
Management. This model is simpler to understand and recreate than the models
previously mentioned. It provides the novice System Dynamics practitioner with a useful
tool to test policies and hypotheses related to building ships. This model will be
discussed in greater detail in Chapter 4.
2.55 Potential
Simulation in many different forms is becoming increasingly accepted as a
standard engineering and management tool. The primary purpose of simulation is to
reduce technical and commercial risk. Simulation helps designers and managers better understand the consequences of their actions in advance of the eventual performance of the project under consideration. The Navy, to this point, has chosen to ignore System
Dynamics. ShipBuild has been mentioned in some circles as a cost estimating tool.
System Dynamics has been used to effectively by several commercial yards as a way to
demonstrate the dynamic nature of ship building and to simulate the process. It has been used by Ingalls to manage complex ship design and production efforts by determining the
future effect of actions on the project. It can provide the valuable insights that a knowledgeable customer, namely the Navy, needs to make good choices as well.
Several scenarios can be simulated to determine the best course of action, thus reducing the risk on the project. System Dynamics provides a way to quantify a good managers
"gut feel". Using historical data, actual behavior can be simulated with a well
99 constructed model. Once the model operates like the real world, projections can be made as to the future performance of the program within the limits of the model.
The emerging emphasis on the use of integrated teams in new procurements accentuates the need for a common framework. Using this framework team members can agree in advance on a course of action based on the expected outcome of these actions. If
all team members are privy to the assumptions and structure in the model, this tool could be used proactively to settle disputes, should they arise, thus avoiding costly and
damaging litigation. System Dynamics modeling is well suited to provide this capability.
It forces the users to think about the system in which they are working. It provides insights into dynamics that are hard to quantify without the use of a model or years of
experience. Thus far, System Dynamics has been a closely held, proprietary management tool. Hopefully, simulation will play a more extensive role in communicating among
stakeholders in the shipbuilding process to the benefit of all.
100 Chapter 3 - Shipyard Visits
In order to learn how ships are built and what factors affect productivity, a series
of shipyard visits was conducted. In this chapter the different yards will be discussed.
The yards visited include:
• Ingalls Shipbuilding, Pascagoula, MI
• Bath Iron Works, Bath, Maine
• NASSCO, San Diego,CA
• Avondale Shipbuilding, New Orleans, LA.
A specific shipyard will be chosen to build SOCV. With the constraints of the shipyard, a Build Strategy will be developed geared for that yard. The timing of source selection is critical to developing an effective design. An effective design enables the performance the customer desires yet reflects the "design for producibility" features that increase shipyard productivity. Source selection depends on many attributes of the shipyard. The yard must have:
• Technical competency to build this type of ship
• Capacity in the yard to absorb the work
• An adequate pool of skilled labor
• Installed machinery and facilities to fabricate, erect and launch the ship
In the past, source selection has relied heavily on the bid price. Over the last twenty years, this trend has led to major conflicts between the government and the contractor as
described in Chapter 2. Some shipyards would underbid the competition to win the
101 contract despite the real costs to build the ship. Once the contract was awarded, the costs would escalate to a point where the shipyard could make some money. A broader view of the capabilities of each yard, combined with bid price and Total Ownership Costs
(TOC) should be used in the future to make better decisions.
The purpose of the shipyard visits was to determine:
• Which yards have the capability to build the SOCV
• How ships are built in this country
• What factors affect program performance in the major US shipyards
• What are the constraints to production
• What are the factors that effect quality and productivity
These yards represent a significant portion of the Navy warship building in this country.
Ingalls and Bath build surface combatants. NASSCO builds auxiliaries and Sealift Ships.
Avondale builds amphibious ships, oil tankers and Sealift Ships. Newport News builds aircraft carriers, submarines, Sealift Ships.
Over the last few years many domestic shipyards have pursued commercial contracts to supplement their Navy work. NASSCO has delivered the most recent commercial work with open top container ships for Matson Lines in 1992. Avondale
Shipyards has been working to develop a small commercial niche for product tankers.
Newport News and Avondale may have a distinct competitive advantage over the other yards in this country with their ability to attract commercial contracts. Many people in
102 the industry think both yards will lose money on these efforts. The true payoff to
increasing the amount of work flowing through the yard is not easily quantifiable.
Increased throughput allows productivity gains and maintain a steady workforce. The
benefits of these effects will not be realized on one ship. The benefits of increased
throughput will show up in the overall health of the company.
Cost effective commercial shipbuilding may be the future for US Shipyards. The
amount of Navy work currently being contracted is not enough to keep all of the large
37 shipyards active, let alone profitable. Without throughput, shipbuilding processes do
not evolve. Without continued improvement, US shipyards will fall further behind the
foreign competition. Without another source of work similar to the core competency of
building warships, several of the large yards will be forced to close.
Areas of interest examined at each shipyard include:
• History
• Financial Status
• Current Navy and Commercial work
• Future Strategic Plan
• Shipyard Layout - Key Factors include:
Land Area Pier Space Crane Capacity Blast and Paint Facilities
37 Marine Agility Group, (June 1996), 21st Century Agile Shipbuilding Strategies- Infrastructure and Business Process Opportunities
103 1
Transfer Equipment Capital for renovations • Human Resource Management
• Production Planning
Build Strategy Constraints to Production • Material Procurement and Handling
• Phases of Construction
• Performance
• Use of Simulation
Interesting topics specific to each shipyard are also investigated. The differences between yards and the perceived advantages and disadvantages of each are discussed. A
specific comparison is made between Bath and Ingalls on the DDG-51 contract. The reasons why Ingalls consistently outperforms Bath in cycle time and cost are investigated
later in Chapter 5.
3.1 - Ingalls Shipbuilding, Pascagoula, Mississippi
Areas of specific interest
• Use of System Dynamics Modeling
• Level of Outfitting -_
• Quality
• Ability to outperform Bath on DDG-5
104 • Capacity
3.11 History
Ingalls started building ships in 1938 with the first all welded ship. They have made considerable process improvements including modular construction on the FFG-7 guided missile frigates and DD-963 destroyer classes. Ingalls was involved with a large litigation claim against the Navy over delay and disruption on DD-963 and LHA-1 amphibious transport ship programs. This claim stimulated the use of System Dynamics
at Ingalls as discussed in Chapter 2. It also launched System Dynamics as a major
methodology in project management litigation. Ingalls has improved the process it uses to build ships as a result of this model. The yard has demonstrated outstanding
performance on the CG-47 guided missile cruiser and DDG-5 1 guided missile destroyer
38 contracts. Since 1975 Ingalls has delivered a combination of 72 new destroyers,
39 cruisers and amphibious assault ships to the US Navy
3.12 Financial Status
Ingalls is currently a subsidiary of Litton Industries, one of the world's leading
suppliers of defense electronics and information systems. It has shown steady profits despite reduction in the number of ships currently being built by the US Navy. Ingalls continues to look for additional international combatant work with two new surface ship
38 Simmons, L.D., (1996) "Assessment of Options for Enhancing Surface Ship Acquisition." IDA Paper P- 3172, Institute for Defense Analyses, Alexandria, Virginia. 39 Litton Industries Inc., (1996), Building Toward the Future, 1996 Annual Report.
105 designs, a 1300 ton corvette and a 3000 ton frigate. The financial performance of Ingalls
40 is shown in Table 3-4.
Ingalls Financials ($ millions) 1996 1995 1994 Marine Engineering and Production Revenues $1294.6 $1396.1 $1484.1 Marine Engineering and Production Operating Profit $142.5 $131.6 141.1 Profit Margin 11.01% 9.43% 9.51% Revenues/Employee ($000) 117 101.2 101
Table 3-4 - Ingalls Financials
Margins at Ingalls have been steady. A measure of effectiveness of the shipyard
is revenues generated per employee. Over the last few years this number has been
increasing at Ingalls indicating higher levels of productivity. With the current procurement rate for Navy ships, Ingalls will have a major shortfall in revenues after the delivery of the last LHD amphibious transport ship. They need to stimulate some new
work in order to maintain current manning levels. The future of Ingalls depends on its ability to continue to win contracts from the US Navy. Without this base of work on which to build, the yard will be in serious financial trouble. The recent award of LPD-17,
an amphibious assault ship, to the Bath/Avondale consortium has left Ingalls in a delicate
position. The yard is currently working at around 30% capacity. Further erosion of the work backlog will force Ingalls to take drastic action.
Litton Industries Inc., (1996), Building Toward the Future, 1996 Annual Report.
106 3.13 Current Navy and Commercial Work
Ship Type No. Size Customer Value (Millions) Delivery
DDG-51 8 6600 It US Navy 2,696.4 12/01
LHD-1 3 28,200 It US Navy 2,287.7 7/00
Table 3-5 - Ingalls Order Book
Navy Work
• The core work at Ingalls is the DDG-51 program. Management counts on
maintaining at least 1.5 ships per year through 2010 when the last ship will be
delivered in the class. Management at Ingalls would like to get more of this work.
With recent developments at Bath on the LPD-17 and Arsenal ship programs
additional DDG-5 1 work may shift to Ingalls.
• Ingalls has recently delivered the last ship in the CG-47 program.
• The Wasp Class LHD-1 represent the largest Amphibious ships in the fleet.
Ingalls has built five of these helicopter carriers and has orders for three more.
• Foreign military sales include the construction of the SA' AR-5 class corvette for
Israel. This class represents a quantum jump in stealthiness of small combatant
ships. Ingalls also offers a 3000 ton frigate for sale overseas.
• Ingalls also does significant repair on CG-47. DD-963, DDG-993 amounting to
$74.2 million in FY 96
• Arsenal Ship - Selected for Phase II. They are teamed with Lockheed Martin and
Newport News Shipbuilding on this innovative design. The small number of
ships projected for this class is less attractive to Ingalls than the LPD-17 contract.
107 • LPD-17 - Lost bid to Bath/Avondale team. Decision under appeal. Teamed with
NASSCO and Newport News Shipbuilding. The Build Plan for this ship seemed
to be flawed. The front end of the ship was to be built at Ingalls taking advantage
of its combat systems integration skills. The aft portion of the ship was to be built
at Newport News. The two pieces of the ship were to be joined during erection at
Ingalls. Transporting half of a 25,000 ton ship 1500 miles for final erection and
having both pieces fit together is quite a challenge. The problems associated with
this plan may have contributed to the contract being awarded to another team.
Commercial Work
• Ingalls has not built any commercial ships since 1973-1974 when it built 4
container ships for American President Lines. They are currently building some
small barges to keep hull and mechanical labor employed until the next spike in
production. Ingalls is not actively seeking commercial work as they believe their
niche is in high performance combatant ships.
3.14 Future Strategic Plan
Ingalls future is dedicated to building complex combatant ships for the US Navy and for foreign export. The specific ships Ingalls seems to be concentrating on include:
• Ingalls would like to be the sole yard for all DDG-5 1 contracts - they feel they
can build these ships more efficiently than BIW.
• Arsenal Ship - Teamed with Lockheed Martin on innovative ship program.
108 • SC-21 - The Navy's future surface combatant. Still in concept stage. Ingalls
would like to be a major part of this contract as this is the only surface
combatant program on the horizon
• Trying to stimulate foreign military sales of SA'AR class or slightly larger
frigate design.
• May be able to compete for CVX if the Navy chooses to pursue a smaller,
conventionally powered variant.
• May need to revisit position on commercial work. Ingalls is an ideal
candidate to build SOCV Project. The Build Strategy for SOCV is oriented
for Ingalls.
3.15 Shipyard Layout
• Land Area - 569.2 Acres of developed land, 788.8 total acres
• Pier Space -2.2 miles of dock space
• Crane Capacity - Portal Cranes - 1 5 heavy lift cranes operate off a fixed track
system in bay areas and on the wharves. Capacity ranges from 39-300 tons.
Lift reach 50-200 ft
• Blast and Paint Facilities - Large building used for surface preparation and
painting of larger blocks. Additional blast and paint area not in use. The
capability exists to blast and paint large blocks. There was little evidence of
extensive use of this facility and it certainly was not a choke point.
109 • Transfer Equipment - Launch/Translation Dry-dock - Capacity - 30,000 long
tons. Limitations: 50 tons per foot loading, 175 ft width, 850 ft length. Meets
SOCV constraints. Provides great flexibility to waterfront area.
• Capital for renovations - Ingalls feels it has more than enough capacity and
technology to produce ships for the Navy. They seem to be holding off on
large capital investments until the current order book stabilizes.
Figure 3-11 depicts the layout at Ingalls.
utrtAicJoouuimt* Material Flow
MUMWII |EIIt|| MINCAIK* j *H0f
miHEMCTNM
IUIMK i»vj . -
U0MA.I WUHATKW ARIA ^^^.
HOMING DSrOOCK
r PAICAOOULA INGALLS SHIPBUILDING DIVISION OF LITTON INDUSTRIES WEST BANK
Figure 3-11 - Ingalls Shipyard Layout 3.16 Human Resource Management
The management at Ingalls realizes that maintaining a stable, experienced
workforce is the key to remaining competitive. They are frustrated with the current order book they maintain. In order for them to make significant improvements in cycle time and productivity, there needs to be sufficient work to keep the yard gainfully employed.
Some characteristics of Human Resources Management at Ingalls include:
• Understand the value of maintaining experienced labor
• Working to instill team concept between trades
• Utilizing Covey training (7 Habits of Effective People) to increase
productivity
- • Workforce 1 1 ,000 workers down from a max of 25,000 in the late seventies
• 1 years average experience
• Mostly union workers
• Mississippi is a "Right to Work" state, meaning the workers do not have to
join union. This gives management some leverage during labor negotiations.
• Working in Integrated Product Teams (IPT). The IPT manages its own
budget. In this way the people who have the most control are the ones who
have to most understanding of the situation.
• Use multi-functional teams of cross trained personnel. Brings designers, CAD
operators, material procurement and construction people together. Breaks
down institutional barriers between departments.
ill 3.17 Production Planning
Ingalls has used Production Planning as a competitive advantage on the CG-47
class and the DDG-5 1 . The yard is big enough to absorb much more work than they have on the order books. As will be discussed later, Ingalls has the tools to determine the most efficient values for key the parameters for building a ship in terms of cycle time and manpower utilization.
Constraints:
The only constraint to the shipbuilding process at Ingalls with its current order
book is man power. The throughput is around 3.5 blocks per week. Production planners estimate they could increase throughput to 11.5 blocks per week without any major
investments in new infrastructure. Ingalls is keenly aware of the cost of ramping up production too quickly. In the 1970's they expanded to 25,000 workers. The loss of
productivity from trying to train all of these new people greatly impacted performance.
The first place a constraint would be felt is in the fabrication area. More burn
tables would need to be purchased to meet a higher demand than 1 1.5 blocks per week.
The other option would be to purchase more of the shapes used in the early stages through out-sourcing. All of the yards visited attempt to produce as much of the ship internally to maximize man hours for their labor force. The Japanese are able to out- source much of the low margin work on smaller subassemblies. US yards do not have the sub contractor relationships to allow them to achieve this symbiosis without a major change in the way they do business.
112 A block at Ingalls is larger than other yards. These Grand Blocks consist of a number of sub-assemblies. They can weigh as much as 250 tons. The flexibility
provided by the land level translator and heavy lift capability is a great strategic advantage for Ingalls in Production Planning.
3.18 Phases of Construction
Observations were made of the construction process during a walking tour of the yard. A time line depicting the way Ingalls builds ships will be compared to how Bath builds the same ship, the DDG-51, at the end of this chapter. The flow of material
through the yard is represented in Figure 3-12.
13 Fabrication Bay I Plates
Blast and
Paint I Bay II Material Receiving Forming Blast and
Paint II
Bay III Forging
I I i On Unit Construction
Line 1 Line 2 Line 3
I I I On Block Construction
Assembly Assembly Assembly Lane I Lane 2 Lane 3
1 I I On Board Construction
Final Assembly of Grand Blocks 600 Area
Launching Docks 900 Area
Figure 3-12 - Ingalls Material Flow
Table 3-6 shows the breakdown by phase of standard man-hours for a typical
DDG-51 construction cycle at Ingalls. It also shows the percentage of units of work broken down by phase of construction.
14 Work and Cost Categories % of Total Work Percent of Std Man-hours Shop Fabrication & Mfg 21.9% 13.6%
Pre Outfitting Installations 1 1 .6% 17.7% Outfitting 23.1% 27.4% Testing 5.1% 4.2% Change (ECP) 28.5% 2.4% Rework 3.3% 1.3% Backcharge (Material Prob) 2.1% .1% Construction Services (Ovhd) 4.4% 33.3%
41 Table 3-6 - Ingalls Work Percentages at Each Phase
Change represents the amount of Engineering Change Proposals (ECP) the customer submits to the contractor once the project has started. The amount of change
the Navy imposes on the shipyard is too high. Once the Production Planning and
Detailed Design phases are completed, changes on that particular ship must stop if we are
to realize any effects of learning. Every time a change is made, it causes deviation from what has already been done. This acts to limit the productivity gains that can be realized.
Although the total man hours associated with change is small, the disruption of base work can lead to significant additional charges.
The overhead rate is interesting. Typical submarine construction overhead has been quoted as at least equal to, and more likely higher than, the direct costs. The
percentage advertised at Ingalls is considerably less even though Ingalls is only utilizing
30%o of its capacity.
Philo, D. (1997) Personal Communication
15 Detailed Design
The Ingalls design facility is very impressive. 3-D Computer Aided Drafting
(CAD) is being used extensively. Although the transition to 3-D CAD has been painful,
true producibility, quality and productivity improvements may be possible using a 3-D
product model correctly. Ingalls is using Dimension III, a Computervision product. It
has invested over $2 billion to achieve 3-D product modeling. Specific observations
concerning design include:
• 200 designers - making the transition to design build teams
• Ingalls uses line people, industrial engineers on same team as CAD operators
to make sure the design is producible.
• Use of 3-D CAD for most of DDG Flight IIA
• 3-D CAD can be used to find interferences and determine proper sequencing
of work
• 3-D CAD also allows Ingalls to bring the operators into the design site to get
feedback on arrangements at a very early stage. This may reduce the amount
of change the Navy demands on these ships.
Material Procurement and Handling
Material control is able to receive up to 50,000 items /month
• Most material comes by truck
• Not much evidence of piece parts laying around the yard. Could be for lack of
work. Ingalls personnel report they maintain an average of 6-8 weeks
116 inventory. They understand that there are internal customers in the shipyard.
These customers must be ready to receive parts before they are shipped.
• Clear areas where pieces are manufactured
• Clear plate line. Plenty of room to cut and bend initial plate
• Moving to 3-D CAD that can be linked to Computer Aided Manufacturing
(CAM).
On Unit Construction
On Unit outfitting is done at several shops around the yard. It takes place between weeks 28-72 for a typical DDG-51 contract. At Ingalls, On Unit represents 22.5% of all outfitting. This seemed like a low number. Perhaps the size and weather at Ingalls allow them to be more efficient than other yards in the On Block and On Board phases. On
Unit assembly takes place in several specialized shops with controlled environments.
Although this stage is thought to be the place with the highest outfitting productivity,
Ingalls chooses to do a larger percentage in later stages. This dynamic will be examined
in greater detail in Chapter 5.
On Block Construction
On Block Construction is conducted in the 600 area of the yard. The structural steel components and the smaller subsystems come together in this area. The amount of
outfitting done here represents 41.9% of the total. This area is out in the weather. The
117 blocks are extensively jigged to allow access to the different yard workers. The blocks are moved along the assembly line with overhead cranes. Specific observations:
• This area seemed congested and not environment controlled.
• Rain, heat must affect productivity and quality
• Access to services must be run via long wires or welding leads
• Level of pre-outfitting low.
• No final blast and paint prior to erection observed. This is the same as state of
the art Japanese yards. The difference is that the Japanese do not have rust
problems during On Block outfitting. Extensive rust could be observed at this
stage which requires surface prep or rework. Touch up work or rework was
being done on third shift to reduce the amount of disruption with base work.
On Board Construction
Ingalls leaves a larger portion to On Board Outfitting than other yards. This part
represents 34.3% of the outfitting that is done after the launch of the ship. This is the
42 least productive of the outfitting stages. The limited access to compartments and interference among trades makes On Board construction very inefficient. Specific observations include:
• Much of outfitting left to On Board phase
• May lead to coordination problems. Much of painting and insulation work is
done on third shift
• More difficult environment in which to work than PO-2 at Bath
•12 Wilkins, J.R., Kraine, G.L., and Thompson, D.H., (Aug 1993) Evaluating the Producibility of Ship
Design Alternatives, Journal of Ship Production, Vol 9, No 3, ppl 88-201. • Flexibility of launching methods may lead to inefficient practices.
The percentages of work done at each stage of construction are shown inTable 3-7
% of Unit Starts Shop Pre-O/F Outfitting Test Change
Phase 1A 1 2 weeks 5.5% Phase IB 12 weeks 18.2% Phase 2 12 weeks 21.8% 23.8% 2.3%
Phase 3 1 2 weeks 13.8% 32.4% 1.6% 4.1%
Phase 4 1 2 weeks 1 1 .6% 31.9% 6.3% 1.1% 7.0%
Phase 5 12 Weeks 9.8% 11.9% 12.3% 7.9%
610 w/s 1 2 weeks 10.9% 21.2% 1.7% 10.8% 620 w/s 12 weeks 5.3% 21.1% 3.1% 9.2%
910 w/s 1 weeks 2.1% 15.3% 6.6% 13.1%
920 w/s 1 weeks 0.9% 8.5% 21.1% 1 1 .2%
930 w/s 1 1 weeks 0.1% 13.6% 33.4% 10.3% 940 w/s 12 weeks 4.8% 19.2% 11.3%
950 w/s 1 1 weeks 0.9% 13.3% 12.8%
Table 3-7 - Ingalls Phases and Work Start Percentages
3.19 Performance
Ingalls' performance has been good for the past several years. On the CG-47 project several ships were also under budget.
• Poor schedule and cost performance on DD-963 and LHA programs led to
$500 million delay and disruption claim.
• Ingalls gave money back to Navy on CG-47 program due to process
improvements. —
• Ingalls has consistently out performed competition on DDG-51 program in
terms of cost.
119 3.110 Use of Simulation
Ingalls was the only yard that was internally using Systems Dynamics modeling
to examine their production processes. It was clear from the beginning that the senior
level management understands that a systems perspective is important. The model they use will be discussed in greater detail in the next section. The uses for the model include:
• Bid Risk Assessment - the simulation group was able to manipulate the Ingalls
Shipbuilding model to examine the LPD-17 work package. They were able to
change work package variables in the model to simulate the work needed for a
larger, less complex amphibious ship. They were also able to change the shipyard
strategic variables to simulate the competitions bid based on historical data and
the open literature. This allowed Ingalls to produce a competitive bid, and assess
cost and schedule risk.
• Analyze the impact of alternative management initiatives striving for better
program performance with lower costs, improved customer relations and
improved labor relations.
• Analyze cross-program and cross functional impacts
• Forecast the time and cost at completion of on-going programs with much greater
accuracy than traditional approach. This forecast can be updated based on new
information concerning change to the scope of the contract or the schedule as a
result of rework or customer directed Engineering Change Proposals (ECP).
120 • Facilities Loading and Planning - The simulation group was able to evaluate if
USS Gonzalez work package would effect core DDG-51 assembly. Obviously if
the yard is only working at 30% capacity, the constraints are labor and
management. Key concerns for strategic planners include:
* How long does it take to hire people and get up to speed?
* Will we see an initial drop in productivity?
* Will this drop in productivity effect the core work in the yard?
• Ingalls is able to project how long it takes for an improvement process like JIT to
take effect. Worse before better dynamics will inevitably take place. The model
used to demonstrate this critical behavior.
• Change Order Negotiation, Dispute Resolution - Model used to quantify change
order impacts. This is done reactively, after the fact. It seems more sensible to
use proactively to give a true value to the decision makers requesting the change.
• The model could be used to test suggestions on how to improve the process. This
is the method the Navy should use for planning change. It captures the true
impact of change to a contract and not just the direct charges. This value may not
be exact but it is a better representation of the real costs that just man hours and
material.
• Cost-Schedule tradeoffs can be done although the Navy has never asked for them.
Only upper level management at Ingalls seem interested in this modeling. They
121 definitely feel there is need for use of models in resolution of these type of
disagreements.
• Build Strategy - Used to look at loading of different trades and infra-structure to
find optimum levels based on current order book.
• Strategic Planning - used to load yard so as not to affect core business. Would
like to model all ships, only have capital for DDG-5 1 program
3.111 Summary
My overall impression of Ingalls is the management is frustrated with the Navy acquisition process. They feel they can produce the ships the Navy desires cheaper and faster than the competition. A systems view of the shipbuilding process is evident from the "Welcome Aboard" message from the CEO to the assembly process where producibility ideas can be found. This systems perspective may have contributed to their
performance improvements since the DD-963 contract. Ingalls is a large shipyard which
is under utilized. It has valuable resources that are not being put to work. Ingalls is the perfect candidate to build high performance commercial ships.
For these reasons, the SOCV program office has chosen Ingalls Shipbuilding to produce this ship based on the projected order book, general characteristics of the yard, and reasonable bid price. Initial estimates place the cost for SOCV around $250 million dollars. Ingalls has built many innovative combatant ships for the Navy. The SOCV
design fits within the constraints of the yard without a large retooling investment. This
122 high performance hull requires the skills of a proven shipyard. Ingalls, operating at 30% capacity, can easily gear up to absorb this work in the yard without disruption to their
core DDG-5 1 work
123 3.2 Bath Iron Works, Bath Maine
Areas of Specific Interest
• Material Handling and Procurement
• Level of Outfitting
• Constraints to Construction
• Competition with Ingalls
3.21 History
Bath Iron Works (BIW) was founded in Bath, Maine in 1884. It has delivered
over 400 ships since then to the world's fleets. BIW has been the lead designer and
builder of half of the non-nuclear surface ships procured by the US Navy since World
War II. BIW currently designs and builds the DDG-51 class destroyers. They are direct
competitors with Ingalls shipbuilding. BIW utilizes modular construction techniques
combined with extensive pre-outfitting of construction blocks.
BIW was purchased for $292 million by General Dynamics on 15 September
1995. General Dynamics management initiated a program requiring its major businesses
to be market leaders and have "critical mass." This is defined as "...the appropriate size to retain key capabilities and ensure economies ofscaled In Shipbuilding and Repair this critical mass now consists of 2 of the 6 largest shipbuilders in the country, BIW and
Electric Boat of Groton, CT. The impact of having two large shipbuilders owned by the
43 General Dynamics Form 10-Q, (August 1996)
124 same company remains to be seen. Economies of scale in terms of material purchases,
software development, and heavy machinery purchases will be more readily realized with
two large construction bases. A common information system, 3-D CAD package, and material vendors are being discussed.
3.22 Financial Status
The financial data for BIW are combined with Electric Boats' s contribution to
General Dynamics revenues and earnings. The numbers for General Dynamics are provided in Table 3-8.
General Dynamics Financials (S millions) 1996 1995 1994 Marine Engineering and Production Revenues $ 2,452 $1,884 1,733 Marine Engineering and Production Operating Profit $218 $194 $196 Profit Margin 8.9% 10.3% 11.3
Table 3-8 - General Dynamics Financial Status
Net sales and operating earnings increased during 1996 primarily due to the acquisition of Bath Iron Works. The margins are similar to the rest of the industry, steady but not staggering. General Dynamics has made a concerted effort to capture enough of the shipbuilding market to ensure they can be competitive.
3.23 Current Navy and Commercial Work
The Order Book at BIW currently consists of the ships in Table 3-9.
Ship Type No. Size Customer Value (Minions) Delivery
DDG-51 11 6600 It US Navy 3,276.7 08/02
LPD-17 1 25,000 It US Navy 500
Table 3-4 - Bath Order Book
Navy Work
125 The bulk of the work is made up of the DDG-5 1 contract. Additional work
includes:
• Phase II Arsenal Ship, teamed with Raytheon. BIW has been granted $15
million to continue efforts to create Arsenal ship concept designs.
• Bath/Avondale/Hughes Aircraft Team won the LPD-17 contract on 17
December 1996. Total value of current contract for the first ship is $641
million. The award provides options for two additional ships bringing the
total value of the contract to $1.5 billion. Bath will provide combat systems
expertise for the first two and build the third ship of class.
Commercial Work
• Teamed with Kvaerner Masa on BATHMAX Project. Looking to bring higher
speed cargo ships to the US. Products range from 500-3000 TEU container
ships, Large Ferries, and Cruise Ships.
• Bath has decided to concentrate on the high performance end of the
commercial spectrum in terms of complexity in the products it offers.
"Competing against the Japanese and Koreans in the cut throat tanker
"44 business where nobody is making money is not where we want to be.
44 Suehrstedt, Eric, (1997), Personal Communication
126 • BIW is not pursuing commercial work as aggressively as in the past.
Sufficient Navy order book for next few years
3.24 Future Strategic Plan
The future looks bright for BIW. They seem to have taken advantage of some of the government funded productivity programs like MARITECH to improve their internal management practices. The new General Dynamics management team seems intent on bringing Bath into the 21st century with large investments in new infrastructure.
• Actively seeking SC-21, Surface Combatant for the 21st century design.
• $300 million dollar facilities upgrade including land level translator. This will
allow much more flexibility in the erection sequence of the different ships.
• Expanding into the river South of the finger pier
• Upgrading blast and paint - long considered choke point of material flow in
yard
• Trying to reduce use of indirect labor to reduce overhead costs. This is a Lean
concept. Japanese shipbuilders can produce the same ships for 2/3 the man
hours of a US yard. Improvements in worker skills will allow US yards to
make similar improvements.
• Treating structural steel and outfitting on same billing system allowing better
tracking of progress.
127 • Having mechanics do their own QA prior to passing on down the line with
check sheets. Another Lean concept. This technique can ensure point of
origin discovery of errors.
• Total revision of initial MRP process for fabrication facility at the Hardings
plant. Could increase productivity and quality significantly if implemented
correctly.
• Bath may have trouble integrating new work into it's core DDG-51 work.
Studies need to be done to ensure core work not disrupted by LPD-17.
3.25 Shipyard Layout
• Land Area - 56 Acres between Bath and Portland facilities
• Pier Space - 4 Berths
• Crane Capacity - Biggest crane is 330 ton on erection ways. Additional 220
ton crane supplements large crane. Limited to 220 ton erection blocks. Use
overhead cranes in pre-outfit areas to move WIP. The layout is so congested,
cannot move with a fork truck. Using overhead cranes disrupts work in other
areas as the blocks travel overhead.
• Blast and Paint Facilities - Facility needs to be upgraded. Constrains the
construction process.
• Transfer Equipment - Use overhead cranes and heavy LO/LO trucks to move
blocks around the yard. All smaller pieces fabricated at Hardings plant come
to the waterfront by truck.
128 • Capital for renovations - General Dynamics seems to have made the decision
to upgrade facilities at BIW. $300 million in improvements are underway.
Further renovations will need to be done to accommodate the LPD-17 project.
• Number of shipbuilding ways - 2 in use, 1 in reserve
Figure 3-13 shows the layout of BIW.
KENNEBEC RIVER
i/7j®^f
s
l l | ' "i ^ouT-j 9 1? r^i ' i J Jn P P ^ pi p. p: 1 hF 546-x 92" JO.OOO.TON r^ 'CCs 545'x 83' pa BATH IRQ! ORKS CORP. L-5L_ -d
Figure 3-13 - Bath Yard Layout
3.26 Human Resource Management
• Size of Workforce - 7500-8000 people
• Have a hiring freeze clause in current contract with unions. This tends to
reduce the volatility of the workforce. Although this restrains management
from cutting overhead quickly in the short term, it may help productivity and
quality in the long term as the average experience per worker increases.
129 • Working to cross train workforce to do more than one trade. This will reduce
the number of hands required on each product over its life time. By cross
training the workers, more value can be added to the pieces per worker than in
the past. This is similar to innovations Japanese workers. No cleanup
personnel are assigned in Japanese yards. The welders clean up after
themselves when the work is completed.
• Attempting to organize workforce into Integrated Product Teams to facilitate
feedback of producibility ideas from the production line to the design site.
3.27 Production Planning
Build Strategy and Constraints
• The constraint many people at Bath point to is Blast and Paint capacity. At
BIW, all material receives an initial surface preparation and priming. After
the blocks are well established in the On Block Stage, they receive a final
Blast and Paint. This limits the amount of blocks to around 2/week.
• In order to ease this constraint, BIW is investing in additional Blast and Paint
facilities. None of the World Class shipyards examined in a recent technology
survey conduct a final blast and paint as an entire unit. The cycle times are
short enough that the initial surface preparation sufficiently protects the ship
during the production process.
• Cycle time improvement has been discussed for several years. It will require a
large investment in information systems, improved material handling, better
45 Storch, R.L., Clark, J., and Lamb, T. (1995) Technology Survey of US Shipyards - 1994, presented at the Ship Production Symposium, Seattle Washington, January 25-27, 1995.
130 inventory controls and a faster erection sequence. Perhaps with the use of
weld through primers and better material handling in the early stages, BIW
could eliminate the second Blast and Paint sequence altogether.
3.28 Phases of Construction
The phases of construction at BIW are limited by the Yard Layout. Expanding
the yard is difficult because of environmental concerns in the state of Maine. BIW began
as a yard that built wooden boats. It has evolved into a yard that builds some of the most
complex ships on earth. There is a definite need for more efficient flow of material through the yard. With new contracts on the order books, the opportunity may have arrived to make a real difference in material flow and sequencing of erection. Figure 3-
14 shows the material flow through BIW.
131 Fabrication and Sub Assembly Shop
Flat Panel Flat Panel ASSYl ASSY2
JCurved* Shell ASSY I Main Assembl Main Assembl7 POIA POIB I Main Assembly ASSYIUnit P02 Erection I I Structural Unit Erection
Figure 3-14BIW Work Block Assembly Flow
Detailed Design
• Bath has been incorporating line people and industrial engineers on same team
as CAD operators to make sure good production issues are established early in
the process.
• They use 3-D CAD for most of DDG Flight IIA using Computer Vision
software. Bath has made the commitment to 3-D CAD to have a good
information interface with the Navy. -^
• CATEA - This capability is a function of the merger with General Dynamics.
The software package can be used to find interferences and determine proper
sequencing of work during the Detailed Design phase. Navy operators, the
132 real customer, can actually take a tour around the space to determine their
preferences early in the construction process. Change in the early stages is
inexpensive. If plans need to be changed to accommodate the preferences of
ship's force later in the sequence, the cost of change increases exponentially.
Material Procurement and Handling
Bath is moving to a "pull" system along the lines of JIT with 2 weeks inventory.
They currently manufacture the parts for an entire unit to completion. Some parts in the unit are not incorporated into the ship for 6-8 months. By this time, the Work In Progress
(WIP) may need additional surface prep. The parts are stored in many different
warehouses. Some WIP is stored in the weather for as long as 9 months. The local
manager of this process is very interested in trying to quantify some of the costs and benefits of Just In Time (JIT) to his operation. Right now he has a gut feel that smaller inventory buffers will be more difficult to manage. He feels that eventually the JIT concept will save money for the entire shipyard but these savings will not be seen at his
level. The big picture is harder to see when your job is becoming more difficult. Even
though the manager knows JIT is the right thing to do, implementation will be difficult.
Things will get worse before they get better. By removing the buffers in the system and enforcing higher quality standards, the process will eventually become more efficient.
Specific Observations include:
133 • Most material comes by truck
• Going to JIT for shapes (72 hours from vendors). Reducing the number of
vendors used. Shapes will come pre-kitted for one days worth of work.
• BIW's primary supplier, Bethlehem Steel is going out of business. This
may force Bath to build more of its own shapes. This may take the
constraints from Blast and Paint and move it to the burning tables.
• BIW cannot get its plate vendor to go to JIT due to MILSPEC DH-36.
The vendor will not break up specialized steel into smaller batches. They
also will only deliver plates in one load during the summer. This forces
Bath to store plates in the weather all year long and pay the inventory
costs. BIW would like to be able to standardize plates for LPD contract
and DDG contract. This should be an action item for the producibility and
ATC programs. Can the Navy accommodate BIW with a more widely
made but of same quality steel that could be used for both contracts?
• BIW is moving to an automatic marking machine using Opti-Nest which
determines what is needed for the next two weeks and finds the best way
to cut the plate. The program goes through many possible configurations
and picks the most efficient. This is different from traditional hand
scribed plate. In the past, plates were marked by hand to reduce the
amount of scrap produced. Opti-Nest will probably be much faster than
hand marking but will result in increased remnants and possible wastage.
134 Management of wastage will be very important. This could be another
interesting study for producibility people.
• Current material tracking system (SMIS) aggregates to level of pieces
(100/product), product(l-2/unit), unit (72/DDG-51 hull) maximum 200
tons each, hull breakdown.
• There are material constraints due to heavy machinery and yard layout.
Management uses flow limits to keep the process from backing up at the
constraints. More study will need to be done to determine what happens
when constraints are removed. Understanding choke points is critical for
cycle time reductions. This is a topic for analysis in Chapter 5.
• Bath must get its manufacturing and material handling processes under
control. There is much evidence of piece parts laying around the Hardings
yard in piles waiting to be transported to the waterfront
• Bath builds an entire unit of work at the same time. If the waterfront is not
ready for this unit, it is stored at Hardings until needed. Minimizing Work
In Progress (WIP) is a critical part of the Just In Time (JIT) philosophy.
The Navy should not encourage such practices with payment for work
accomplished. Payments should be standardized to even out the cash flow
of the contractor.
• The material remains in storage at Hardings for as long as 9 months
waiting to be called by the waterfront. The process of finding the
completed parts after 9 months of storage can be difficult.
135 • The JIT initiatives currently being put into place at BIW should help
streamline the manufacturing process.
• Current plans call for the waterfront to "pull" what they need from
Hardings on a daily basis. Hardings will also go to pull system internally.
More emphasis is being placed on the early stages of construction. If this
stage is well thought out and managed, improvements in the subsequent
stages can occur as well. If the initial manufactured pieces are of low
quality or inventories cannot support the work on the waterfront, the entire
process will be disrupted.
• The JIT transition will be difficult for BIW. It will experience growing
pains as machines and personnel that are operating at a less than optimal
pace are identified. If the managers can overcome these growing pains,
the JIT process will be healthy for BIW.
On Unit Construction
Bath uses its covered shops to produce much more than Ingalls in the On Unit phase. Because of their constraints for waterfront space, BIW pre-outfits to a larger percentage. This acts to increase the quality and productivity of the outfitting work.
Moving larger units around the yard is a constraint. Whenever a unit is moved, work on
the rest of the modules comes to a halt. Specific observations include:
• Most lifts are made with overhead cranes.
136 • Bath produces as much of what will go into the ship as possible. Its union
agreements call for as many man hours as possible go to Bath workers.
• Working in controlled environment indoors clearly yields higher quality
products.
On Block Construction
• At Bath, much of this stage is out of the weather. This increases both the
quality and the productivity of the workforce.
• Bath pre-outfits in this phase to the maximum extent possible before
conducting a final blast and paint.
• The final Blast and Paint is the bottleneck in the entire construction process
but yields higher quality products.
On Board Construction
• BIW is limited to two final construction/launch areas or ways. They have a
third area but are hesitant to invest the money to make it active. These
facilities are in constant use. A critical factor for Bath is to reduce the amount
of time the ship spends on the erection ways.
• Bath has been able to reduce this time to a little over 9 months. As their order
book becomes more diversified in the next few years, coordination of the
erection sequence will be very important.
137 • By the time the ship is launched, the ship is between 72-74% complete. The
remaining work consists of pulling cables and fitting the sonar dome. This
will be discussed in greater detail at the end of this chapter.
• Bath has been pursuing accuracy control to the point where they can cut neat
the erection blocks. The objective of cut neat is to allow the blocks to come
together with little or no modifications. This goal is ambitious. Current
accuracy control at BIW does not support this goal.
• The addition of a land translator will make this stage more flexible. Bath is
currently limited to two erection sites. With a land translator they could put
more of their waterfront space to work simultaneously.
3.29 Performance
BIW has maintained adequate performance on its contracts with the Navy. It produces quality products on time and for the most part under budget. Bath has not been able to produce ships as inexpensively as Ingalls do to their internal process constraints.
The Navy seems to value the quality BIW is able to build into the ships as is evident by its continued support of Bath with new DDG orders.
3.210 Use of Simulation
The managers at BIW all expressed interest in the use of simulation as a way to improve their planning processes. In particular they would like to see:
138 • JIT - What is the improvement to the bottom line of moving to a JIT inventory
process. The current manager at Hardings would like to be able to justify
expenditures to upper management. Right now he feels that he is making the
right decision although he wonders about the magnitude of investment in
capital and man hours required to produce the desired result. Simulation
would reinforce the positive aspects of JIT.
• Bath would like to be able to run several scenarios to determine which is more
cost effective for the initial manufacturing processes, build parts at BIW or
subcontract them out.
• Choke Point Analysis - Determining the true constraints of the yard is critical
to reducing cycle times. Being able to pinpoint the place in the yard that
requires an infra-structure upgrade has great value.
• Finally, being able to quantify the requirement to carry two types of steel
would be of interest. If simulation could be used to quantify the difference
between maintaining two lots of steel vice using the same steel for both DDG-
5 1 and LPD- 1 7, the Navy may pay more attention.
3.211 Summary
Bath is a relatively small yard when compared to Ingalls. It struggles with
waterfront and production area constraints. This is very similar to many of the Japanese yards. Constraints force management to properly plan each stage of construction. The
initial phases of operations at Bath require some attention. The improvements planned
139 for the Hardings plant go a long way to becoming more efficient. The outfitting of blocks
as observed in P02 at Bath was the finest quality observed in all of the shipyard tours.
Working in a controlled environment without the limitations of On Board outfitting is
clearly a more efficient process than that observed at Ingalls.
The current order book at Bath allows management to make significant investments in infrastructure and process improvement. The required throughput to
sustain BIW is not as high as at Ingalls. With proper streamlining of material flow and investments in new technology, BIW could come close to matching the quality and productivity of the Japanese.
140 3.3 - NASSCO, San Diego, California
Areas of specific interest:
• Degree of Outfitting
• Material Control
• Rework
• Design Change Integration
3.31 History
NASSCO - National Steel and Shipbuilding Company is an employee owned
major ship design, construction and repair facility. It was started as a small machine shop in 1905. NASSCO has built hospital ships, oil tankers, ferries, container ships, combat supply ships, tank landing ships, RO/RO and Oceanographic Research Ships. 25% of business devoted to overhaul and repair. In all NASSCO has delivered 296 ships evenly
distributed between Navy and commercial work. NASSCO is a subsidiary of Morrison-
Knudsen Company Inc.
Three major business areas include:
• Ship Repair and Conversion
• New Ship Construction
• Industrial and Offshore Fabrication —
141 3.32 Financial Status
NASSCO is a employee owned company that is not a publicl traded company and
so the financial data was not available. It was essentially rescued from bankruptcy by the
US Government after major performance problems on the AOE-6 project. Performance on the converted T-AKRs was poor during the first stages of the project as well. As with
any conversion, additional scope was found that needed to be scheduled. In hindsight it may have been more cost effective to build three additional three ships thus extending the product line to try to capture economies of scale. The reason the conversions were
favored for the first group of ships was the expected short turn around time. This "quick fix" turned out to take much longer than anticipated and cost almost as much as the new construction ships.
Work on the New Construction T-AKRs has begun. Considerable learning was
gained on the Sealift Conversion projects. Better schedule and cost performance is expected on this contract.
Tedesco, M. (1997) Personal Communication
142 3.33 Current Navy and Commercial Work
The Navy Contracts NASSCO has in its yard is included in Table 3-9.
Ship Type No. Size Customer Value (Millions) Delivery
AOE 1 19,700 It US Navy 365.8 10/97
T-AKR (C) 2 33,200 It US Navy 423.2 8/97
T-AKR 5 36,100 It US Navy 1,112.1 9/00
Table 3-9 - NASSCO Order Book
NASSCO relies on auxiliary and Sealift contracts from the Navy for its business. Recent developments include:
• Selected for Phase II consideration for the Arsenal Ship Program. Some
concern within the Navy that NASSCO has not produced a combatant ship.
This could prove to be an advantage if producibility features are emphasized.
Teamed with Northrop/Grumman.
Commercial Ships
No current new construction work on the books.
Most recent commercial work includes:
• R.J. Pfeiffer, a 28,555 DWT open container ship for Matson lines in 1992
• Exxon Valdez and Exxon Long Beach 209,000 DWT tankers for Exxon in
1985.
NASSCO is better suited to building commercial ships than BIW or Ingalls. They have been the recipient of several MARITECH contracts for new ship designs including a crude carrier, a cruise ship and a trailer ship capable of transporting 500 truck trailers and
143 200 automobiles. Having a standard design that can be used "off the shelf to satisfy a
customer's needs is a major strategic advantage to reduce costs and cycle times. The
Japanese and Koreans use their marketing departments to push the standard shipyard designs. If American shipyards can produce world class designs, they may be able to draw more attention from world shippers.
3.34 Future Strategic Plan
"By the year 2000 NASSCO will be the most effective designer and repairer of
Navy and commercial ships, with at least one major international ship construction
project; and will have a proven record of dramatic, ongoing improvement in our
" processes andproducts. 47
• NASSCO is vying for commercial work including a 160,000 Dead Weight
Tons (DWT) ARCO tanker and an even bigger 200,000 DWT B&P Tanker.
• Management is looking to win the next Navy auxiliary ship contract, ADCX.
Significant producibility changes could be made on this ship to do things
smarter and improve the Navy shipbuilding process. Auxiliary ships are more
like commercial ships than warships so learning may be possible that may
translate across platforms.
3.35 Shipyard Layout
• Land Area - 147 acres of real estate
• Pier Space - 8 positions for outfitting and repair
47 NASSCO Vision Statement
144 • Crane Capacity - A Cranes - 3 with 90 ton capacity - limits erection blocks to
220 tons. B Cranes - smaller 40 ton cranes on rails. Cranes are used to move
most of the blocks around the yard. This can interrupt work going on in the
rest of the yard as the block passes overhead.
• Blast and Paint Facilities - NASSCO has sufficient capacity to support
subsequent phases.
• Transfer Equipment - Overhead cranes are used exclusively to move the
products around the shipyard.
• Capital for renovations - If any commercial work is contracted, investments
will need to be made in several areas. NASSCO management has taken a wait
and see attitude to improvements which is typical of US shipyards as a way to
avert risk.
• Deep water access to the Pacific.
• 2 building ways and one dry dock for new construction.
• Dry dock used for tankers with high block coefficient. Not deep enough for
finer ships.
• Major rail line brings steel and other material directly into the yard
Figure 3-15 depicts the shipyard layout at NASSCO.
145 Figure 3-15 - NASSCO Shipyard Layout
3.36 Human Resource Management
• Current workforce of 5000 people. Peak as high as 7600.
• Assign a Project Manager for each program to provide interface with customer.
• Use modern effective information and control system to maintain clear visibility
of all aspects of each program.
• Used to integrate engineering work requirements and schedules with manpower
budgets, establish lead times for material procurement actions, and perform
critical path scheduling including work around and recovery schedules.
146 • Gathers earned values and actual costs of work performed to produce schedule
and cost variance analyses.
• NASSCO point to this method as a competitive advantage.
3.37 Production Planning
NASSCO takes a manual approach to planning. The first step is to determine people required in different trades. They attempt to keep manning levels constant as they
know trying to scale up quickly is expensive. Next the planners look at throughput rates and capacity at the different stages of construction to determine choke points. Finally,
they look at crane capacity and equipment. There is currently no formal way of quickly assessing the impact of new work on the core business. Most of the structural steel work is done in the assembly stage and during On Board construction.
Current Constraints:
NASSCO is working at about 55% capacity. With present levels of manning
NASSCO can produce approximately 12 blocks per week with 1.5 shifts. In order to
increase the throughput, the first step is to hire more people. With the current infrastructure, production planners assume they can expand to 20 blocks per week without hitting another constraint.
At about 20 blocks per week, the constraint to production is the burning tables.
Another table would be required to sustain 20 blocks/week. With a new table, NASSCO
147 could go to 22.5 blocks per week before they would need to invest in additional overhead
crane capacity. Most of the lifts at the yard are conducted with 90 A cranes. These lifts consist of erecting, turning and moving. A smaller B crane would be needed first to allow the A cranes to concentrate on erection. The cost of these improvements and
determining the cost-benefit relationship of investing in new infrastructure is a topic for future work
3.38 Phases of Construction
Detailed Design
NASSCO maintains a strong design department. They have conducted several recent design efforts under MARJTECH sponsorship on product and car carriers. They are trying to standardize the parts used to build the different ships in the yard. If the simplest parts of the ship are common, they may be able to reach economies of scale in early production. Managing the process of joining these common components into individual blocks becomes a harder challenge.
Material Handling and Procurement
• Most material comes by truck or rail
• There did not seem to be as much work in progress at NASSCO as observed at
BI W. The products are very different. The DDG-5 1 is much more densely
outfitted than the T-AKR.
148 • NASSCO is working to make Just in Time (JIT) a reality by coordinating timely
deliveries from its suppliers.
On Unit Construction
The outfitting process at NASSCO resembles that found at Ingalls. Much more
outfitting is done in the On Board phase. As can be seen in Table 3-10, next to no work
is done at this stage at NASSCO. The weather and space available at NASSCO do not force the processes inside. This may lead to degraded productivity and quality.
On Block Construction
More of the outfitting is done here although still not to the level that Bath or some
of the foreign yards achieve. No Final Blast and Paint is conducted prior to erection.
Again, this is a function of both the process and the product at NASSCO. A T-AKR is a huge truck carrier. The cargo carried by the T-AKR does not come aboard until a crisis
occurs. The DDG-5 1 , on the other hand, is packed with weapons and electronics that
allow it to operate before delivery to the Navy. Coordination of the higher degree of
outfitting is more easily accomplished at earlier stages. The differences between ships are captured in a complexity factor.
NASSCO does not see the value in pre-outfitting to a greater degree with its current products and schedules. To increase throughput to the levels that would support building
149 commercial tankers, NASSCO will need to do more outfitting away from the erection
sites.
On Board Construction
Most of the Outfitting work is left to the On Board phase. As discussed in
Chapter 2, this is the least efficient of the construction phases. Once the ship is on the
ways or in the water, access to different spaces is extremely limited. The controlled
environment and easy access to support services of the shop is not available.
Interferences with other trades must be overcome.
A breakdown of how much of the ship is built at each of the different phases of
construction is included in Table 3-10.
Phase of Construction Percent of Work Done Structural Steel Outfitting
Planning - SOC 3% 4%
Fabrication - SOC 1 12% 16%
Sub Assembly - SOC 2 6% 1%
Assembly - SOC 3 41% 4% On Unit - SOC 4 0% 1% Block Outfit - SOC 5 4% 22% On Board - SOC 6 33% 44% Testing - SOC 7 1% 8%
Table 3-10 - NASSCO Stages of Construction
3.39 Performance
NASSCO experienced poor cost and schedule performance on the AOE contract for a variety of reasons. Cost growth on this program has been estimated at 30%. This
resulted in the elimination of one ship from the contract to rescue the company from
150 bankruptcy. Basically the Navy paid the same amount of money for one less ship. Work has progressed more smoothly on the Sealift conversions and even better on the New
Construction Sealift ships. Understanding the constraints of the yard is critical to being
able to deliver at cost and on time.
3.310 Simulation
NASSCO has been exploring the use of simulation in their yards. Some of the production people have been to Ingalls to visit the simulation group. NASSCO is not convinced strategic modeling will do anything for them. They have approached Decision
Dynamics about the status of ShipBuild. There are many questions that arose during the visit that could be investigated using System Dynamics.
• First, NASSCO will need to greatly improve throughput in blocks per week if
they are to smoothly work both Navy and commercial work. They are able to
push about ten blocks per week through their yard with the present manning
levels. Plans for ARCO tanker work indicate levels of 28 blocks per week will be
required. NASSCO does not know if they can support this increase in throughput.
They are bidding on new work that could put their base contract, the Navy Sealift
ships, at risk. Based on their performance on the AOE-6 program running
concurrently with the Conversion Sealift Ship, this increase in capacity is not
realistic. It would be interesting to study the constraints within the yard using
simulation to determine the constraints at each level.
151 • NASSCO went through a long battle with the Navy over delay and disruption on
the AOE-6 program. This dispute resulted in the cancellation of one of the ships
in the class. Perhaps a model similar to the Pugh Roberts Shipbuilding Model
could have been used locally to determine how much of the delay and disruption
was the fault of the contractor and how much was the fault of the Navy.
• NASSCO is trying to find a way to quantify the cost of internally generated
change. They have been encouraging employees to provide suggestions for how to
improve the process. Producibility issues play a large part in reducing costs and
cycle times. The problem that exists is determining the cost of making a change
to the design at a late stage in the contract. They have a formal billing system for
customer generated change orders. There is no rapid and efficient way to do a
cost benefit analysis for producibility issues.
• Every shipyard mentioned flattening manning levels as a crucial need in their
yard. They understand that in times of little work, the easiest way to cut overhead
is to lay people off. All also reported that hiring new people to support a new
contract is expensive. NASSCO mentioned this specifically as a problem on the
AOE-6. The Navy awarded NASSCO the task of converting 3 foreign container
ships into Sealift assets for the US Army. This called for the hiring of additional
personnel, especially structural steel workers. Productivity in the entire yard went
152 down for a considerable time as experienced people were moved to new jobs and
new people were indoctrinated.
• Having dealt with large fluctuations in manning before, the senior management is
looking for ways to keep their current workers gainfully employed until the next
surge in work comes along.
3.311 Summary
NASSCO is the largest shipbuilder on the West Coast of the United States. It has
great potential to compete with the Japanese and Koreans on commercial ships if it can
maintain a strong base of Navy work. The Navy ships it builds are more like commercial ships than any of the other yards visited. Learning across programs could be a valuable factor for improving productivity and quality.
If NASSCO management can get a better handle on the constraints of the yard, they may be able to make smart decisions about where and when to invest in
infrastructure. The design staff is capable of producing commercial designs. It remains to be seen if these designs generate any commercial work.
153 3.4 - Newport News Shipbuilding, Newport News, Virginia
A detailed tour of Newport News was not possible during the limited time for this
research. The preliminary information for NNS is included for completeness and will be
updated when the opportunity arises.
Areas of Specific Interest include:
• Building Double Eagle Tankers in same yard as Nuclear aircraft carrier.
• Impact on overhead of other program in a nuclear capable yard
• Problems encountered with shipfitting on Double Eagles
• Renovations are needed to retool for NSSN
• Impact of diverse products in same shipyard
• Innovation Center for CVX
3.41 History
Newport News Shipbuilding (NNS) is the largest privately owned shipyard in the
United States. It was recently spun off by Tenneco to become its own company.
The company was founded in 1886. NNS has delivered nearly 800 ships ranging from tugboats to super carriers. Famous ships produced at NNS include:
• Seven battleships of Teddy Roosevelt's Great White Fleet
• BG Texas and Pennsylvania
• Ranger - first US carrier built from keel up
154 • Passenger Liners America and United States - Fastest commercial ships ever
built
• Enterprise - first nuclear aircraft carrier
• Los Angeles Class submarine
• Nimitz Class Carriers
• UST Atlantic, UST Pacific - largest ships built in Western Hemisphere
Newport News has become the sole provider of Nuclear Aircraft Carriers in the country
3.42 Financial Status
NNS Financials ($ millions) 1996 1995 1994 Marine Engineering and Production $1908 $1800 $1753 Revenues Marine Engineering and Production $160 $184 $200 Operating Profit
Profit Margin 8.4% 10.4% 1 1 .4% Revenues/Employee ($000) 106 90 88
Table 3-11 - NNS Financial Status
As the Los Angeles submarine came to a close, more of the shipyard activity became lower margin conversion and repair work. NNS has a considerable backlog of work as will be outlined in the next section. Revenues per employee have been steadily increasing indicating increasing productivity per worker.
155 3.43 Current Navy and Commercial Work
Ship Type No. Size Customer Value (Millions) Delivery
CVN 2 75,000 It US Navy 4,350 12/02
NSSN 2 7500 It US Navy 1,229.4 6/00
T-AKR 2 33,200 It US Navy 425.6 3/97 Product Carriers 4 46,000 Fleeves Shipping 152.0 2/98
Product Carriers 5 46,000 It Hvide 245.7 12/98
Table 3-12 - NNS Order Book
Navy Work:
• The bulk of NNS order book is made up of the 2 Nuclear Aircraft Carriers,
CVN-75 and CVN-76. Plans are proceeding for CVN-77 as well.
• As the Los Angeles construction came to a close, NNS made a successful push
to acquire some New Attack Submarine (NSSN) work. They are currently
teamed with Electric Boat to produce next attack submarine.
• Conversion of 2 Strategic Sealift Ships, Gordon and Gilliland
• Overhaul of CVN-69
The commercial work at NNS is intriguing. The Double Eagle, Double Hulled
Tankers are the first new construction double hulled ship built in a US shipyard that meet
48 the requirements of OPA 90.
• Mobil has recently purchased another of the Double Eagle tankers
• NNS may be taking a loss on the current commercial work hoping to generate
niche market for double hull tankers produced"domestically. If productivity
can be improved using this work it may help future Navy construction costs as
well.
Maritime Reporter and Engineering News, (1997) Mobil to buy NNS Tanker, February 1997.
156 3.44 Future Strategic Plan
NNS has committed themselves to become the only nuclear shipbuilder in the
country. They are currently investing in yard improvements including:
• Spending $70 million for Automated Steel Factory used to modify steel
fabrication capabilities using robotics and CAD/CAM technology
• Reconfiguring yard to build New Attack Submarine
• $28.5 million to increase the length of the longest dry dock to 21 73 ft
CVX is the next big prize on the horizon. Current plans call for a less expensive, possibly conventionally powered carrier. This could introduce competition to the carrier
market for the first time in 30 years. NNS is utilizing its innovation center to ensure it remains the primary player in any new aircraft carrier contracts.
NNS made a concerted effort to build commercial ships after 1 5 years. Many people say they are losing their shirts on this contract. NNS seems to feel the commercial experience will pay great dividends down the line. How do they know this is not a wasted effort? There have been rumors of many problems on the contract. The oversight of dealing with Navy nuclear ships may have priced the yard out of commercial
competition. It will be interesting to see what happens with this effort.
3.45 Shipyard Layout
• Land Area - 550 acres along James River near port of Hampton Roads
• Pier Space - Eight Dry Docks, floating dry dock, four piers
• NNS is the largest of US Shipyards in terms of capacity and work force.
157 [tommy]
Figure 3-16 - Newport News Shipbuilding
158 3.5 Avondale Shipbuilding
Only a quick tour of Avondale was possible. The details of the uard will be fleshed out in later visits.
3.51 History
Avondale Industries is an employee owned company under an Employee Stock
Ownership Plan (ESOP). Avondale is a diversified company consisting of several subsidiaries including the Shipyards, Modular Construction, Steel Sales, Boats, and IPDE
Technology Divisions. Avondale's Shipyard Division was founded in 1938 by two ex
river boat captains as a barge construction and repair facility. In 1959, Avondale was
purchased by Ogden Corporation. It remained part of Ogden Marine until 1987 when the
ESOP purchased the company.
3.52 Financial Status
Avondale Financials ($ millions) 1994 1993 1992 Marine Engineering and Production Revenues $475.8 $456.7 $576.4 Marine Engineering and Production Operating Profit $16.9 $3.4 $7.2 Profit Margin 4% 1% 1.5% Revenues/Employee ($000) 83 91 89
Table 3-13 - Financial Data at Avondale
159 3.53 Current Navy and Commercial Work
The order book at Avondale is listed in Table 3-14.
Ship Type No. Size Customer Value (Millions) Delivery
LSD 1 11,900 It US Navy 257 4/98
WAGB 1 15,000 It USCG 232.2 6/98
LPD 1 18,000 It US Navy 641.1 7/02
T-AKR 5 34,400 It US Navy 1,102.7 1/00 Product Carriers 2 38,000 AHL 71.5.0 7/97
Table 3-14 - Avondale Order Book
3.54 Future Strategic Plan
Avondale has established itself as the premiere builder of Amphibious ships in this country. They also continue to push for commercial work. Investment in
infrastructure continues. Avondale has doubled the capacity of its Blast and Paint
Facility, increased On Unit and Fabrication capacity in the "Ship Module Factory." A better material handling and control system will need to be put into place to make the
shipyard more efficient. There is an excess amount of storage space and warehouses in the yard indicating much work in progress. Avondale may need to make similar changes
as BIW to its MRP system if they want to become as productive as the foreign competition.
160 3.55 Shipyard Layout
The layout at Avondale is shown below.
Figure 3-17- Avondale Shipyard Layout
Key Factors include:
• Land Area - 268 acres
• Upper Shipbuilding area capable of constructing ships up to 250,000 dwt or 3
conventionally sized ships concurrently. The limitations of the dry dock is
81,000 It.
• Pier Space - 3 outfitting piers for a total of 6000 linear ft
• Crane Capacity - 600 ton floating crane, 250 ton turnover rig, 250 ton, 150
"~ ton, and 1 00 ton outfitting cranes,
• Blast and Paint Facilities
• Transfer Equipment: Blocks are moved around the yard using movable cranes
and Heavy LO/LO trucks with a capacity of 250 tons. At the erection site, a
161 land a series of 280 ton jacks are used to move the completed ship into
position for launch. It takes almost eight hours to move the ship into position.
Ships constructed in the upper shipbuilding area move laterally in three
positions for launching by the large floating dry dock. Ships built in the lower
yard are moved laterally and parallel toward the river and side launched from
one of 5 positions.
3.56 Use of Simulation
Avondale is interested in exploring the impact of commercial and government work in the same shipyard. Many people in the industry feel the two products are mutually exclusive. The same workforce cannot do both. Avondale and NNS are currently attempting both. Avondale would like to know if workers can be used across programs effectively or if they should be separated into two worker pools. Being able to cross programs allows the shipyard managers much more flexibility to keep people at work. This practice may also lead to productivity improvements in Navy work.
3.6 Summary
This section examines the differences between the yards visited. The strategic variables used to simulate each yard are presented in Table 3-15. The values in this table are the result of observations, publicly released information and educated guesses. They do not represent the exact values at any given time in these shipyards and should be used
for comparison purposes only. Some data is left blank for future research. As this work continues, more detailed information will be gathered leading to more accurate results.
162 Shipyard Parameters Bath Ingalls NASSCO NNS Avondale Labor 7500 11000 5000 18000 4500 Peak Labor 10000 25.000 7600 30000 9000 Max Labor (Phase) Design (people) 250 200 250 300 350 Fabrication(people) 500 850 On Unit(people) 500 850 On Block(people) 500 850 On Board(people) 500 850
Outfitting Piers 4 3 8 4 3
Total Shipyard Area (acres) 55 788 147 550 268
Pre-outfitting 73% 65% 60% 65% 60%
Design Capacity (blks/wk) 3 2 3 4 6
Current Infrastructure Limits (blks/wk) 2 12 20 35 B&P (blks/wk) 2 8 10 35
Fabrication Equipment (blks/wk) 8 12 20 35
On Unit Area (blks/wk) 8 25 23 35 On Block Area (blks/wk) 6 30 25 40
Erection Area (blks/wk) 8 30 25 40
Cranes (block size) 220 300 250 300 250
Erection Sites (active) 2 6 3 9 8
Erection Site Limitations - Length (m) 260 270 310 400 310
Erection Site Limitations - Weight (It) 30,000 30,000 200,000 200,000 250,000
Erection Site Limitations Draft (m) 7 6 5 8 7
Dry Dock Capacity (It) 30,000 30,000 200,000 200,000 81,000 Capacity Utilization 75% 30% 55% 40% 50% Current Throughput (blks/wk) 2 4.5 12 10 18
Table 3-15 - Shipyard Strategic Variables
163 Chapter 4 - Production Model Description
In this chapter, the Build Strategy for the SOCV and the shipyard characteristics
of Chapter 3 are used to create a System Dynamics model that is used to manage the
planning and construction process of SOCV. The model is used to increase understanding and facilitate insights concerning the complexities of the project.
Shipbuilding consists of large, complex, capital intense projects. Shipbuilders consider
prototyping too expensive. Because of this, shipbuilding is a natural field for use of simulation. 3-D product models of the ship allow many of the uncertainties involved with the ship design to be examined virtually. Likewise, the process used to build the product can be simulated. The experience gained using a simulation run many times will prove invaluable to managers when they need to make real decisions.
Any large scale construction project demonstrates the following characteristics which tend to make them harder to manage:
• Complex material flows, consisting of multiple interdependent components
• Dynamic behavior, not constant over time
• Nonlinear relationships
• Feedback between and feed forward
49 • "Hard" and "soft" data
• Many factors operating simultaneously
49 Sterman, J.D., (1992), "System Dynamics Modeling for Project Management", unpublished working paper, Systems Dynamics Group. Sloan School of Management. Massachusetts Institute of Technology.
164 In support of this work a System Dynamics project model is developed to
represent the shipbuilding process. The model is tuned to capture the specifics of Ingalls shipbuilding. The analysis conducted in Chapters 3 and the Build Strategy Document provide the basis for calibration to represent shipbuilding at Ingalls. This model has been
developed for proof of concept. The level of aggregation is high enough to allow several
case studies to be conducted relatively quickly. It is also detailed enough to capture
project dynamics as observed during the shipyard visits. Additional calibration, using historical data and field observation, will be required to produce a model which can be
used to accurately predict project performance for cost and schedule. This model is
valuable for the behavior it can simulate and not for exact values. It can be used to test the impact of certain policies and their relative magnitude.
The first task when building a System Dynamics model is problem identification
and model conceptualization. "In constructing a useful model ofcorporate behavior, it is essential to have clearly in mind the purposes of the model. Only by knowing the questions to be answered can we safely judge the pertinence offactors to include in or
" omit from the system formulation. 50 The purpose of the Ship Production Model is to provide a broader systems perspective for managers involved in the acquisition process for SOCV, both in the government and in the private sector. The model supplements the static planning programs of Critical Path Method (CPM) and Probabilistic Evaluation and
50 Sterman, J.D., (1992), "System Dynamics Modeling for Project Management", unpublished working paper, Systems Dynamics Group. Sloan School of Management. Massachusetts Institute of Technology.
165 Review Techniques (PERT) that are so widely used in ship construction. It captures the dynamic features of feedback and prerequisite dependencies found in the shipbuilding
process. Once the Ship Production Model is complete, a base case can be developed.
The base case represents the present state of the way Ingalls build ships. The model can
be modified to represent any shipyard. The base case is used as a benchmark from which
policy analysis is conducted. The Ship Production Model is then used in Chapter 6 to examine the differences between two shipyards and several process issues which may improve the performance of the project. Each issue was mentioned specifically by the shipbuilders as a concern for which they did not have the tools to examine.
4. 1 Model Development
The Ship Production Model uses previously developed work to identify the key
structures found in most projects. Additional structure is then added to capture the specific attributes of shipbuilding. The reference modes and dynamic hypotheses for
project structures can be found in several works including Industrial Dynamics , System
S2 SI
Dynamics Modeling with Dynamo , and the Vensim User's Guide . The key structures used in the Ship Production Model are identified in this section. Several of the table functions used in this model were developed in other studies including the Effect of
Overtime on Productivity and Quality. —
51 Forrester, J.W. (1961), "Industrial Dynamics", Cambridge, MA, Productivity Press. 52 Richardson, G.P, and Pugh, A.L., (1982) "Introduction to System Dynamics Modeling with DYNAMO," Productivity Press, Portland, Oregon. 53 Vensim User's Guide, (1995) "Ventana Simulation Environment", Ventana Systems Inc.
166 4.11 Previous Project Models
System Dynamics Project Models were first envisioned by Jay Forrester at the
Sloan School of Management in the early 1960's. Several of his students have used
Project Models to gain insight in many industries. Similar structures for Project Models have been developed and tested in previous studies. Some models, described in the literature search, can represent the shipbuilding process. A brief summary of the project
models most suited for shipbuilding and the structures they introduced is listed below:
• Roberts - 1974 - First research and development project model. Introduced work
flow based on productivity and manpower, management decisions, and perceived
and actual progress.
• Cooper - 1978 - First large scale use of project model. Model of the Ship
Production process used for claims settlement. The model focused on rework
caused by customer changes. Key structures include rework, downstream
dependencies, overtime, defect discovery time and quality. Concepts introduced
include:
- Customer can influence cycle times and scope of work
- There is a distinction between first and higher order impacts
- Competition among activities for resources.
54 Ford, D. N., (August 1995), "The Dynamics of Project Management: An Investigation of the Impacts of Project Process and Coordination on Performance," PhD Thesis. Sloan School of Management. Massachusetts Institute of Technology. Cambridge, MA.
167 • Richardson and Pugh - 1981 - Developed System Dynamics Textbook. Created a
small project model including real progress, undiscovered rework, perceived
progress, effort perceived remaining, hiring, and scheduling.
• Abdel-Hamid - 1984 - Modeled software development which contains many
structures similar to shipbuilding.
• Homer - 1993 - Built project models using constraints of available work and
infrastructure to limit production. Also introduced fatigue as a human resources
issue.
• Ford - 1995 - Points out that the structure of static planning models have not been
effectively coupled with dynamic feedback. Attempts to bridge the gap.
Developed multi-phase product development model with down stream constraints
for the computer manufacturing industry.
• Alfeld - 1996 - Shipbuild - starts as production planning model. Adds feedback
and causal loops after static plan is established. Still under development but holds
much potential as a commercial package.
Many of the structures used in these models were developed for different industries and
are tailored for Shipbuilding. Additional structure is taken from the Molecules of
Structure developed by Jim Hines and merged by Bob Eberlein into the System
Dynamics modeling software package, Vensim.
55 Hines, J., (1996), Molecules of Structure - Building Blocks for System Dynamics Models", Leaptec and Ventana Systems.
168 4.12 Ship Production Model Characteristics
The Ship Production model consists of several interacting sectors. These include the following:
Multi Phase Work Accomplishment and Rework -
Labor Adjustment - Project Labor adjustment and Shipyard Hiring and Firing
Schedule Completion
Financial
Quality Effects
Productivity Effects
Shipyard Constraints
Each sector will be discussed in greater detail in the following sections. Multiple phases are modeled with inter-phase dependencies. These phases are consistent with the Build
Strategy developed for SOCV and are listed below.
• Design
• Fabrication
• On Unit Construction
• On Block Construction
• On Board Construction
The next step in the progression of this model would be to tune it to match the Product
Work Breakdown Structure (PWBS) currently being proposed by NSWC Carderock as a standard for the industry. With common production sequence, each yard could be compared directly
169 Three types of constraints limit the work accomplishment in the model.
• Labor - limited to 200 shipyard designers and 850 production people per ship
• Process constraints between phases - Early portions of ship must be built
before the later portions. Must have panels with frames and strakes before we
can mount the machinery foundations. We must have the foundations in place
prior to landing the main engines.
• Facilities - Engineering Work Stations, Building Ways, Lift Capacity,
Covered Manufacturing Space, Assembly Area, and Blast and Paint all act to
constrain the flow of material through the yard. These hard constraints should
not be allowed to effect production although in some yards they do.
Management should be able to control the rate of work based on the
workforce. These constraints cause managers to react and are included in the
model to determine there impact on the process. When hard constraints are
experienced, investment in additional infrastructure should be made.
Quantifying the benefits of investment in infrastructure is one of the primary
purposes of this model
4.13 Model Features
The scope of the problem is defined by the boundaries chosen for any model. For
this reason it is critical to identify the boundaries. The level of aggregation is also important to identify. In order to make a model sufficiently compact, some simplifying
170 assumptions must be made. Every detail of the shipbuilding process can not be included in the model. The point at which aggregation begins depends on the purpose of the
model. The boundaries of this model are depicted in Figure 4-18. The purpose is to concentrate on those aspects the shipyard has under their control.
Not Modeled: Competition Market Exogenous Factors: Navy Design Effort Change Orders Material Constraints Shipyard Basework Process Complexity Work Breakdown Endogenous Factors: Different Labor Trades Wage Rates Project Scope
Government Oversight Initial Project Definitior Project Schedule National Economy Added Scope Inter-Phase Dependency New Technology Rework Generation Tests and Trials Rework Discovery Project Productivity Project Quality Labor Adjustment
Figure 4-18Model Boundaries
For this model, all construction work starts out as drawings and raw stock. From these basic components, parts are either manufactured or purchased from an outside
source. All material is assumed to be ordered and delivered in time to support the process.
These parts are combined to form units of structural steel and subsystems in the
first assembly stage. The outfit units and steel units are brought together with additional drawings for assembly and outfitting guidance to form erection blocks. The blocks are
combined at the erection site to form the finished product, the ship. Additional outfitting
171 is done at the erection site. The amount of parts used to make a unit is an average of all the units. Likewise the blocks use an average number of units and drawings. Finally the
ship is erected from the blocks in a sequence identified in the Build Strategy.
This model is much more closely aligned to the Build Strategy of a new ship than
any other shipbuilding project model. It is being used to find problems before they occur
instead of assessing blame after the fact. It contains many of the internal precedence and constraints planned for incorporation into Shipbuild. The work profile and the cycle times are true representations of a real ship program. The determination of how many
blocks are needed is formed using the Build Strategy in Appendix A. The shipyard
infrastructure and labor constraints are determined in Chapter 3.
Specific features include:
• Rework is modeled as iteration required to be done based on the shipbuilder's
definition of quality
• Customer driven design changes are modeled as increased scope and plugged
into rework sector
• The Financial Sector determines overhead rate, unit costs, and project
performance in terms of cost and schedule.
• The Schedule Sector is used to calculate Willingness to Change Workforce
and Schedule Pressure. These are dynamic decisions based on how far along
the project has progressed. The Schedule sector is also used to determine
whether the project is ahead or behind schedule.
172 • Productivity is a function of Schedule Pressure, Phase of Construction,
Fatigue and Work Force Experience.
• Quality Goal is a management policy decision but is affected by many of the
same factors as productivity.
• Base Work is a function of attractiveness against industry competitors and
project performance. In this model it will be exogenous.
4.2 Model Structure
The Ship Production Model consists of 7 sectors. They are:
Work Flow and Rework
Labor Determination
Productivity
Quality
Phase Initiation and Schedule
Financial
Shipyard Constraints
The equations used in each sector are discussed below. The full set of equations are found in Appendix B.
173 4.21 Multi Phase Work Flow and Rework Sector
The Work Accomplishment core structure comes from the Molecules of
56
Structure . This structure is the core of any project model. The components of the Work
Accomplishment sector are shown in Figure 4-17.
Infrastructure Constraints to Production
^Project Labor> Gross Productivity
Phase Definition Time to Schedule Change Tiscovenng Rework.^= Added Scop> f Reported Fraction Complete Rework Discovery Time jj ^_ .^^ Downstream Rework Discovery Figure 4-19 - Work Accomplishment Sector Sti Hines, J.H., (1996), "Molecules of Structure - Building Blocks for System Dynamics Models," Leaptec and Ventana Systems. 174 A description of the flow of work through the model starts with the initial conditions for the project. Phase Definition is an exogenous variable based on the required work content set by the Build Strategy. The work is broken out by phase of construction. The amount of work done in each stage is a strategic decision based on the constraints of the shipyard. The magnitude of work conducted in each phase represents the way Ingalls currently builds ships. Phase Definitionfphase] =Design(12500),Fabrication(39726),On Unit(8680),On Block(l 7187), On Board(36902) work orders A work order represents the smallest of the tasks needed to build a ship consisting of 20 hours of work. This is the smallest increment of work that is tracked at several shipyards. To go to finer detail does not match up with how progress is currently reported in the yards. Some shipyards would like to go to reporting of progress in a more timely fashion. When this happens, the smallest unit can be adjusted accordingly. 175 The Work Remaining is a level. The initial value is set by Phase Definition. The level is reduced by the Gross Completion Rate. The flow of Discovered Rework and Added Scope contribute to the Work Remaining. The value of Work Remaining at any time is the integration of the difference in these two flows. Work Remaining[phase] = INTEG'(Discovering Rework[phase]-Gross Completion Rate[phase], Phase Definition[phase]) The Gross Completion Rate is a flow which is affected by Productivity, Project Labor, and Constraints to Production. The work completion rate is the minimum of either the labor or infrastructure constraints. If the amount of work to be done is zero, the Gross Completion Rate returns a value of zero as well. Gross Completion Rate[phase] =IF THEN ELSE(Work Remaining[phase] >0, MIN(Infastructure Constraints to Production, Possible Labor Completion Rate[phase]), 0) The work is either completed correctly or becomes Undiscovered Rework based on the Quality of the project. Quality is a strategic variable determined initially by the shipyard. Several factors, discussed later affect the value of quality. Work Completed Correctly[phase] = INTEG(Gross Completion Rate[phase] * Work Quality[phase], 0) Undiscovered Rework[phase] = INTEG(Gross Completion Rate[phase] * (1- Work Quality[phase]) - Discovering Rework[phase], 0) Correct Work and Undiscovered Rework are both Reported Work Complete. Reported Work Complete[phase] = Work Completed Correctly[phase] + Undiscovered Rework[phase] 176 Faulty work that needs to be redone is uncovered by Rework Discovery in both the current phase and with Downstream Rework Discovery. In-phase discovery can be done by the workers themselves or by people assigned to Quality Assurance. Downstream Discovery is usually done by workers in the next phase who find the inputs to their process lacking. Downstream Discovery is affected by how long it takes for the faulty equipment to be or drawing to be incorporated into the next phase. For the Design it may take as long as six weeks to find the problem. The Undiscovered Rework feeds back in to Work To Do after it is found. Any Change in Scope to the project generated by the customer or internal needs is added to the Discovered Rework. Change in Scope goes through the same Time to Schedule Change as Rework for proper integration into base work. Discovering Rework[phase] = MAX(0,MIAJ(Undiscovered Rework[phase]/ TIME STEP, Undiscovered Rework[phase]/Rework Discovery Time[phase] + SUM(Downstream Rework Discovery[downstream!,phase]))) + Added Scope[phase]/Time to Schedule Change Downstream Rework Discovery[downstream,phase] = IF THEN ELSE(Phase is Active[downstream] : AND:Prerequisite Dependency[downstream,phase], Undiscovered Rework[phase]/Prerequisite Rework Discovery Time[downstream,phase], 0) 177 4.22 Labor Adjustment Sector Order Book £3 Layoffs Vetera^ Total Required La borvLj—\s* Training Workforce Tralrting'T **Q Planned Relative Effort Intensity Maximum Labol Planned Fraction Schedule Passed - Figure 4-20 - Labor Determination The Project Labor is a level which is adjusted using the Net Project Labor Adjustment. Labor is added and subtracted from the project based on the Desired Labor of the phase. A certain amount of Time to Adjust Labor is required to make labor adjustments. This represents the time to either indoctrinate shipyard personnel to the project or release people back to the labor pool. Additionally, the number of people that can be added or subtracted from a program during one week is capped by the Maximum Weekly Labor Adjustment. Project Labor[phase] - INTEG(Net Project Labor Adjustment[phase], Desired Labor[phase]) 178 Net Project Labor Adjustment[phase] = MINfMaximum Weekly Labor Adjustment[phase] (Desired Labor[phase] - Project Labor[phase])/Time to , Adjust Labor[phase]) Maximum Weekly Labor Adjustment[phase] = 50 people/week Time to Adjust Labor[phase] = 3 weeks The Available Workforce is a stock which represents the pool of qualified people in the yard available to work on new ship projects. The initial value is the difference between Base Work Required Labor and the Veteran Workforce. Adjustments to the Available Workforce are then made by the Net Project Labor Adjustment for each phase of work depending on the manpower needs of the phase. Available Workforce[phase] = INTEG(-Net Project Labor Adjustment[phase], Veteran Workforce-Base Work Required Labor) The Base Work Required Labor is an exogenous variable which represents the number of people in the shipyard working on base work. At Ingalls, the Base Work in the yard includes the production of DDG-5 1 and LHD- 1 , as well as Arsenal Ship design work Base Work Required Labor = 8000 people The Veteran Workforce is a stock representing the number of trained workers available to meet the Order Book of the shipyard. The initial value for the yard is set at 11,000 people. This Workforce is reduced by Normal Attrition and Layoffs. It is increased by newly trained workers after a Training Time. This Training Time can be as long as 2 years for some trades. It is set as an average training time of nine months. 179 Attrition is set at approximately 1 % per year. This is the typical number of people who leave Ingalls every year for a variety of reasons including retirements disciplinary terminations and voluntary separation. Layoffs, involving the reduction of productive labor, occur based on the labor needs of the shipyard. Veteran Workforce - INTEG(Training-Attrition-Layoffs,l 1000) Layoffs = IF THEN ELSEfOrder Book<2, Veteran Workforce-Total Required Labor, 0) Total Required Labor = SUM(Desired Labor[phase !])+Base Work Required Labor Attrition - Veteran Workforce*0.002 The Veteran Workforce is increased by the flow of new people being trained. A period of 4 weeks is required to acquire New Hires representing the delay in recruiting new workers. Additionally, it takes 9 months for a Trainee to become a productive worker through Training. The stock of Trainees is emptied by Training. Only the Veteran Workforce can provide suitable labor for the project. The Total Shipyard Workforce is the sum of the pools of people in Trainees and Veteran Workforce. This value is used to determine the Overhead Rate in the Financial Sector. New Hires = IF THEN ELSE(Veteran Workforce>Total Required Labor, 0, (Total Required Labor- Veteran WorkforceJ/Hiring Time) Hiring Time = 4 Trainees = INTEGfNew Hires-Training, 0) Training = Trainees/Training Time 180 Training Time = 36 weeks Shipyard Workforce = Trainees + Veteran Workforce The Desired Labor of the phase is used to adjust the Project Workforce. It is the minimum of the Maximum Labor allowed for each phase and the Planned Work Remaining over the Normal Productivity times the Scheduled Time Remaining. It also takes into account the Planned Relative Effort Intensity. This allows a smooth ramp up and ramp down of the work force. Without using a planned intensity, labor adjustments at the beginning and end of the project are erratic and tend to overshoot what is actually required. Desired Labor[phase] = Mils](Maximum Labor[phase], IF THEN ELSEfTime + Time to Adjust Labor[phase] >= Sched Start Time[phase] .AND: .NOT:Phase is Done[phase], XIDZ((Planned Work Remainingfphase] / Normal Productivity[phase]) ^Planned Relative Effort Intensity[phase], Schedule Time Remaining [phase]Maximum Labor[phase]), 0)) Maximum Labor[phase] = 200,850,850,850,850 people 4.23 Phase Initiation and Schedule Completion The planned completion time of each phase is established by the Build Strategy and the Schedule of Events in Appendix A. Phase Initiation depends on prerequisite tasks being completed to a satisfactory level. Shipbuilding in the past was an entirely linear construction process much like building a skyscraper. In the last 20 years it has evolved into a much more modular process with much of the ship being built in smaller packages and then erected into the entire ship. More concurrence is possible between phases thus reducing the total amount of time needed to build the ship. 181 ^4 f Project is Done Reported Work Complete 4 START TIME hale'isDone \ I JNIT_SCHED 4 \ ^.Sched Start Time Prerequisite Dependency / j Prerequisites in Place Scheduled Start Slip fime Prerequisite Required Fraction Complete T Start Slip Trigger Increment Figure 4-21 - Schedule Sector The Initial Scheduled Start Time is set for each phase in the Build Strategy Document. It represents when in the construction process the yard would like to start each phase. An Initial Schedule Completion Time is also determined by the Build Strategy. The actual start and completion of each phase depend on other factors experienced during the simulation. In order for the phase to start, certain prerequisite tasks need to have been completed. For the phase to end. a certain percentage of the work in that phase must be completed . The actual times may not match the planned times. Initial Schedule Start Time[phase] = Design(0),Fabrication(54),On Unit(54),On Block(60),On Board(102) weeks Sched Start Time[phase] = INTEG(Scheduled Start Slip Time[phase], Initial Schedule Start Time[phase]) Initial Schedule Completion Time[phase] = 102,102,88,102,128 week Sched Comp Time[phase] = INTEG(sched comp time slip[phase], Initial Schedule Completion Time[phase]) Expected Completion Timefphase] = IF THEN ELSEfPhase is Active[phase], 182 Time + Expected Time Remaining[phase],Sched Comp Time[phase]) Initial Phase Length[phase] = INITIAL(Initial Schedule Completion Time[phase] - Initial Schedule Start Time[phase]) The Schedule Time Remaining is used to determine how much time is left to do the project work. If the project runs into trouble, the managers can do several things to correct for project deficiencies: • Slip the schedule to the right • Increase the labor working on the project • Work overtime with the existing workforce All of these options have an associated cost. Based on observations in the shipyards, all are used. Determining which is the most effective policy or combination of policies is very difficult. Each case can all be simulated using the model depending on what policy management chooses. In this sector the schedule slippage formulation is depicted. It depends on the Schedule Time Remaining. Schedule Time Remaining[phase] = MAX(0,Sched Comp Time[phase] - Time) The schedule is allowed to slip to the right if the expected completion date exceeds a certain limit. Several factors must exist for a slip in schedule to occur. Schedule Slippage is only allowed for the last 12 weeks of the project. This is a management decision that can be modified. The schedule is slipped in discrete increments when needed. _ Scheduled Start Slip Time[phase] = IF THEN ELSE(Phase is Active[phase] OR: VMIN(Prerequisites in Place[phase,prereql]) > : OR: (Time + TIME STEP < Sched Start Time[phase]) ,0, Start Slip Trigger Increment/TIME STEP) 183 Sched Comp Time SlipfphaseJ - Scheduled Start Slip TimefphaseJ + IF THEN ELSE(Phase is Active[phase] .AND:Schedule Time RemainingfphaseJ < SLIP ZONE :AND:Expected Time RemainingfphaseJ - Schedule Time RemainingfphaseJ > SLIP TRIGGER, SLIP INCREMENT/TIME STEP, 0) When the prerequisite tasks required to proceed to the next phase are completed to a certain level, the process is allowed to move to the next phase. Prerequisites in Place[phase,prereq] —IF THEN ELSE((Prerequisite = > Dependencyfphase, prereqj 0) : OR: Reported Fraction CompletefprereqJ Prerequisite Required Fraction Complete, 1, 0) The amount of time the schedule is slipped, if it needs slipping. SLIP INCREMENT = 4 The amount of time behind schedule at which the completion date will be slipped. SLIP TRIGGER = 8 week The distance from the end of a project at which schedule slippage becomes an alternative. SLIP ZONE = 12 week The slip increment for starting a phase up if things are behind schedule Start Slip Trigger Increment = 0.5 week The fraction of the schedule that has passed adjusts itself in response to schedule slippage. Fraction Schedule PassedfphaseJ = IF THEN ELSE (Time > Sched Start TimefphaseJ, IF THEN ELSEfTime < Sched Comp TimefphaseJ, (Time - Sched Start Time[phase])/(Sched Comp TimefphaseJ - Sched Start TimefphaseJ), 1), 0) Several Equations are used to determine what part of the project is active and when they can be finished. Each phase is turned on at the Scheduled Start Time if the prerequisites are in place. Flags are used to indicate whether the phase is active or completed by returning a value 1 or a 0. Phase is Started[phase] = IF THEN ELSEfTime >= Sched Start TimefphaseJ, 1,0) 184 Phase is ActivefphaseJ = IF THEN ELSEfPhase is Started[phase] .AND: NOT: Phase is Done[phaseJ, I, 0) Phase is Done[phase] = IF THEN ELSE(Reported Fraction Complete[phase] > Required Fraction Complete[phase], J, 0) Project is Done represents a flag to indicate that the project is completed. Once the On Board outfitting is done, the project is completed. In reality, the project would require extensive trials and testing. For this model, the project is completed once all the planned work is done. Project is Done = Phase is Done[ONBOARD] 4.24 Financial Sector The Financial Sector is used to track project performance for cost. The Weekly Costs are determined based on the number of people working on the project. The Overhead Costs are determined by the total number of people working in the shipyard. Charges for Schedule Overruns are also modeled. Material costs are also included as a percentage of labor costs for simplification. These charges all add up to the total project cost. 185 Total Weekly Cost Overrun Charge Weekly Phase Labor Cost